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For use in the Indian Audit and Accounts Department only

~~an~
REVENUE AUDIT MANUAL
~a:f~
INDIRECT TAXES
(~~~)
(CENTRAL EXCISE)

c6~ll \iNI~ fci"fl

CENTRAL EXCISE WING
1fr"«f ~ Flll?i Cf) +1~I cl (SII q :flafCP q;y ~
OFFICE OF THE COMPTROLLER & AUDITOR GENERAL OF INDL
 PREFACE
The first edition of Revenue Audit Manual was published in February 1961,
followed by a revised edition in July 1971, diglot edition in May 1978 and a third
revised edition, also in dig lot, in April 1991.

In the last decade or so there has been a focus on tax reforms and sweeping
changes with regard to Central Excise administration. With the introduction of self
assessment and dispensation of statutory records excise controls have been made less
stringent. In order to ensure that audit procedures and practices keep pace with the
changes, the Manual has been updated with an eye to strengthening of the central
excise revenue audit.

The present Manual, also in diglot, consist of two Sections. The first
containing eighteen Chapters (1 to 18) dealing with Central Excise Law and its tax
administration. The 5econd Section containing seven chapters (19 to 25) covers
Central Excise Receipt Audit (CERA) administration with specific focus on audit
planning, execution of audit through audit checks and reporting. This Section has
been prepared keeping in mind international best practices, including those of
ASSOSAI and INTOSAI, relating to revenue audit.

Whereas, every effort has been made to make the "Manual" comprehensive
incorporating the statute provisions as interpreted in various judgments and as per
clarifications issued by "the Central Board of Excise and Customs, the provisions in
the "Manual" should not be quoted as authority in support of audit objections raised.
The relevant provisions of the Central Excise Act or Rules made thereunder shall be
the basic statutory authority in support of the objections.

The Manual provides guidelines to ensure conduct of audit through proper

audit checks. However, these should not be taken as exhaustive.

New Delhi (M.S. SHEKHA WAT)

Dated: 27 August 2004 Addl. Dy. C & AG of India (RA)
 INDEX
SECTION 1- CENTRAL EXCISE LAW, ADMINISTRATION AND PROCEDURE

Para No. Subject Page No.

CHAPTER-l INTRODUCTION

A~ Meaning of Excise r'\~O ~ E'-s ~ ";J)~ , 2

-1.2 History of excise duty 2

1.3 Types of duties 2

@ Self assessment of duty _~+ ~~ w -- -~ __

G~CJL~' 4 /'

@ Provisional Assessment 4 /

1.6 Time and manner of payment of duty 5

CHAPTER-2 ORGANISATIONAL SET UP OF CENTRAL EXCISE DEPARTMENT

2.1 Ministry of Finance (Department of Revenue) 6

2.2 Central Board of Excise & Customs (CBEC) 6

2.3 Chief Commissioners 7

2.4 Central Excise Commissionerates 7

2.5 Commissioner (Appeals) 7

2.6 Computerisation of Central Excise department 8

CHAPTER-3 THE CENTRAL EXCISE ACT, 1944

3.1 General 9 . r

@ )\(\ Definitions - Section 2 9

3.3 Authority for levy - Section 3 IO

3.4 Forms of levies P
I~" 11 e.-
3.5 Pre-excise goods 13

1[9 Determination ofYalue - Section 4 \"~ ~V~l~\li l/t9 13

3.7 Remission of duty on goods found deficient in quantity - Section 5 17 -

,./
r~~
J.8 Power to tr~t exemption fro.m dutyJof excise - Section 5A 17
~9>
-.2. Registration
- - --
of certain person - Section 6 17

Offences and penalties - Section 9 18 ,

~
-
3.11 Recovery of sums due to Government - Section 11 18

3.12 Recovery of duties not levied or not paid or short levied or short paid or 19
erroneously refunded - Section 11A 4
~l])
~. J Interest on delayed payment of duty - Section 11AA
\

19

3.14 Interest on delayed payment of duty - Section 11AB 20

3.15 Penalty for short levy or non levy of duty in certain cases - Section 11AC 20

3.16 Claim for refund of duty - Section 11 B 20

ii
 3.17 Remission of duty - Section 11 C 21

3.18 Duties of excise collected from the buyer to be deposited with the Central 21
Government - Section I ID

3.19 Price of the goods to indicate the amount of duty paid thereon - Section 21
12A

].22 Consumer Welfare fund - Section 12C & 120 22

Settlement Commission 22
~
3.22 Appeals to Commissioner (Appeals) - Section 35 22

3.23 Appeals to Appellate Tribunal - Section 358 22

3.24 Deposit, pending appeal, of duty remanded or penalty levied. - Section 23

35F

3.25 Application to High Court - Section 35G & 35H 23

3.26 Appeal to Supreme Court from - Section 35L 23

3.27 Power of Central Government to make rules - Section 37 23

3.28 Delegation of powers - Section 37 A 24

3.29 Instructions to Central Excise Officers 24

3.30 Publication of rules and notification and laying of rules before 24

Parliament-Section 38

3.31 Effect-of amendments, etc. of rules, notification or order - Section 38A 24

CHAPTER-4 CENTRAL EXCISE RULES

4.1 Central Excise Rules, 200 I 26

'I• ~~ Definition 26
-
4.3 Appointment and jurisdiction of Central Excise Officers
. '
26

4.4 Duty payable on removal 27

4.5 Date for determination of duty and tariff valuation 27

4.6 .Assessrnent of duty 27

i@ Provisional assessment 27

4.8 Manner of payment 28

4.9 Registration of assessee 28

-
'~
~4.10 Daily stock account 29
r--- Goods to be removed on invoice
4.11 29

4.12 Filing of monthly/quarterly return ./ 29

~
4.13 Special procedure for payment of duty 29
-'" '
4.14 Credit of duty on goods returned to the factory 30

4.15 Removal of goods by a unit in the Free Trade Zone or by a hundred per 30
cent Export-Oriented Undertaking or by a unit in the Special Economic
Zone for Domestic Tariff Area

III
 4.16 Rebate of duty 30

4.17 Export without payment of duty 30

4.18 Warehousing provisions 30

4.19 Remission of duty 31

~~.
Access to registered premises 31 ./
-
4.21 Power to stop and search 31

4.22 Power to detain goods or seize goods 31

4.23 Confiscation and penalty 31

4.24 Penalty for certain offences 32

4.25 General penalty 32

4.26 Confiscation & disposal of property 32

4.27 Power to issue supplementary instructions 32

CHAPTER-S MODV AT CREDIT AND CENV AT CREDIT

5.1 MODVAT (Modified Value Added Tax) Scheme on iaputs ~ 33

5.2 Modvat credit on capital goods 34

~@) Cenvat Credit Rules

~ V
CHAPTER-6 CLASSIFICA TlON OF GOODS

6.1 Introduction 41

6.2 Determination of classification 41

6.3 The Central Excise Tariff Act, 1985 43

6.4 Interpretative rules 46

6.5 Other basis of classification 46

6.6 Classification of parts 48

6.7 Classification of goods assembled at site . 50

6.8 Important case laws on classification 53

~ CHAPTER-7 RULES FOR THE INTERPRET ATION OF THE CENTRAL EXCISE

TARIFF SCHEDULES

7.1 Introduction 57

7.2 Principles of interpretative rules 57

CHAPTER-8 VALUA TlON OF EXCISABLE GOODS FOR THE PURPOSE OF EXCISE

DUTY
.•..•.. ~'.
8.1 Introduction 65
~
t8~ Duty chargeable on Itransaction value}
,. \
65
..;"

Duty with reference to place of removal 66

~
~.4 } Ingredients of transaction value / ~-:c w. - '8 P¥, 66
'-./

iv
 8.5 Deductions not permissible 69
~'-~--
8.6 Assessment under Valuation rules 69

8.7 Important case laws on valoation 74

CHAPTER-9 VALUATfON.-OF EXCISABLE GOODS ON THE BASIS OF RETAIL

<SALE PIDCE(RSP)/

9.} Introduction 76

9.2 Coverage and rate of abatement 76

9.3 Special features/clarifications 82

riJ) Changes in definition of~etail

~~ Sale
~ Price (RSP) through Budget 2003 (83.
CHAPTER-I 0 EXEMPTIONS TO SMALL SCALE INDUSTRIAL UNITS (SSI) -
10.1 Introduction 84

10.2 Scheme through notifications 84

10.3 Definition of small scale industrial (SSI) unit 85

10.4 Socio-economic objective 85

10.5 Main features 85

CHAPTER-I I EXEMPTIONS, REMISSIONS AND~UND..s!OF OUTY

~
11.1 Exemptions 88

4~ - Remissions
. r"I~' C et .mva. ~~~\.._~ ~ ~"'1I1r' .l {l-i\1
Y94
4t'ii3} _ Refunds C\~, {-:)~ ~d~\ -\ \ . ·19 , 95
-CHAPTER-I 2 EXPORTS OF EXCISABLE GOODS
,

12.1 Introduction 100

12.2 Types of exports 100

12.3 Export under claim for rebate 102

12.4 Export of excisable goods under bond without payment of duty 112

12.5 Simplified export procedure for exempted units 123

12.6 ' Manufacture of export goods in bond 125

12.7 Miscellaneous Export Provisions 128

CHAPTER-13 SPECIAL SCHEMES/PROCEDURES FOR PAYMENT OF EXCISE DUTY

ON SPECIFIED PRODUCTS

13.1 Excise duty on readyrnade garments 131 .

13.2 Compounded duty on stainless steel pattis/pattas, and aluminium circles 134

13.3 Compounded duty on embroidered fabrics 137

CHAPTER 14 RAISING, ADJUDICATION AND RECOVERY OF DEMANDS

I 14.1 Raising of demand by issue of show cause cum demand notice 140

~14~ Adjudication of demands 140

-
v
 14.3 Recovery of duty demanded 141

(i4.4) Duty under protest 143

"'8iAPTER 15 FILING OF APPEALS

15.1 Filing of appeals 144

15.2 Statutory provisions ,144

.
CHAPTER 16 : COLLECTION OF REVENUE AND CREDIT ro THE GOVERNMENT
ACCOUNT

16.1 Collection procedure 146

I~ Accounting of duty collection 147

I~
16.4
-
Internal checks
- /

Interest~)J1 delayed transfer of tax collection by banks to the Government

148 "

149
./
account

CHAPTER 17 ACCOUNTS TO BE MAINTAINED BY ASSESSEES

17.1 Dispensing with statutory records 150

17.2 Private Records 150

17.3 Returns 152

'\
17.4 Changes from 1 July 2001 153

CHAPTER-I 8 MISCELLANEOUS

18.1 -
Export Oriented Units (EOUs) units in Export Processing Zones (EPZs).
Electronics Hardware Technology Parks (EHTPs) and Software
155

Technology Parks (STPs)

18.2 Other Act/Rules concerning Central Excise 158

18.3 Services provided by various agencies covered under the Service Tax 159

SECTION II - CENTRAL EXCISE RECEIPT AUDIT

CHAPTER-19
-- .-..-.. .•...•...
AUQIT OF RECEIPTS
..•.
19.1 Introduction 165
.'
19.2 Audit Mandate 165 \
19.3 Statutory audit 166

4~9.4) General principles of receipt audit ~ 167

CHAPTER 20 AUDITING STANDARDS

20.1 Introductory 170

20.2 INTOSAI's Auditing standards

,
4 170

20.3 The Auditing standards by C & AG of India 170

CHAPTER-21 ORGANISATIONAL SET-UP OF AUDIT (CENTRAL EXCISE RECEIPT

AUDIT WING)

21.1 Headquarter's office 173

vi
 21.2 Field formations 175

CHAPTER-22 AUDIT PROCEDURE - ~ANNlNG ~ 1.1\'

22.1 Need for audit planning 186

22.2 Basic requisites 186

22.3 Preparation of audit plan 187 /

CHAPTER-23 AUDIT EXECUTION (PROCEDURE & AUDIT CHlfC!S.§2 ,

23.1 Items of work . 197

23.2 Deployment of audit personnel 197

2:3.3 Development of manpower 198

23.4 Devolution of duties 198

23.5 Audit procedure and preliminary checks - audit of manufacturing unit 199
/t. C
t~ Aodit of S!!!e~c~o~ts ~!].f~ --- C Q ·ot,....p; 209 -
-
23.7 Audit of Range office/Divisional office
~\(\

212

CHAPTER-24 AUDIT REPORTING - PROCEDURE

24.1 Reporting Standards 271

24.2 Audit findings - Co~unication of 271

I
CHAPTER-25 MISCELLANEOUS

25.1 Scrutiny of Court's orders appearing in ELTs/ECRs 291

25.2 Scrutiny of circulars/notifications etc. 291

25.3 Cases of doubts 291

25.4 Access to the CAG's web site and CBEC's web site 291

25.5 Letters addressed to headquarters 291

25.6 Pursuance and settlement of objections 292

25.7 Returns [Link] submitted to headquarters 292

Annexures

3.1 Rates of interest chargeable/payable under Section 11AA, 11AB and 25

I1BB

18.1 Exemption notifications in respect of units in free trade zones and 100 per 163
cent export oriented units

21.1 Details of "Reviews" featured in the Report of the Comptroller and 176
Auditor General of India on Indirect Taxes - Central Excise and Service
Tax

21.2 Details of paragraphs on Central Excise discussed by Public Accounts 178

Corn m ittees of Pari iament

21.3 Statement showing names of the field offices dealing with CERA with 182
names of their counterpart Corn m issionerate of Central Excise

22.1 Assessee's Profile 191

VII
 23.1 Devolution of duties (CERA Field Parties) 217 .
23.2 List of records 223

23.3 Audit check (questionnaire form) 225

24.1 Title sheet of draft Local Audit Report (LAR) 275

24.2 Register to watch receipt and issue of Local audit Reports 279
(--24.~ Objection Book (Part-I) 280

24.4 Statement of outstanding objections 283

24.5 Potential Draft Paragraphs Register 285

24.6 Statement of facts Register 286

24.7 Instructions for preparation of draft paragraphs 287

24.8 Register of draft paragraphs 290.

25.1 Copy of Circular No.6/84 dated 07.02.1984 on Settlement and dropping 293
of objections in CERA and CRA and register of dropped objections

25.2 Details of returns/statements to be furnished to the headquarters 301

viii
 SECTION I

CENTRAL EXCISE LAW,

ADMINISTRATION &
. PROCEDURE

\
 CHAPTER-l

INTRODUCTION

1.1 Meaning of Excise

Excise is a tax on manufactured products. The term comes from the French word
"acceis" meaning tax. The fiscal term "excise" was first employed as a general term
meaning a toll or tax.

The Supreme Court in the case of R. C. Jall Vs. Union of India (1962 A86 1281;
1962-Suppl. 3 SCR 436) summarised the law as follows: -

"Excise duty is primarily a duty on production or manufacture of goods produced

or manufactured within the country. It is an indirect duty which the manufacturer or the
producer passes on to the ultimate consumer, that is, its ultimate incidence will always be
on the consumer. Therefore, subject always to the legislative competence of the taxing
authority, the said tax can be levied at the convenient stage and so long as the character
of the impost that is it is a duty on manufacture, or production, is not lost. The method
of collection does not affect the essence of duty, but only relates to the machinery of
collection for administrative convenience".
B~·
1.2 History of excise duty

Excise as a levy, either in the shape of tax or a toll, has been collected in India
from ancient times. In the Maur an eriod excise duty was collected on liquor and salt.
The early empires, the Moghuls and the British treated salt as a monopoly article for
raising revenue .. Products like sugar, cloth, leather and dairy products were subjected to
excise. However. it was only in 1894 that a beginning was made towards modern excise
system when duty was imposed on cotton yarn for counts above twenties at five per cent,
motor spirit was included in 1917, kerosene in 1922, un-manufactured tobacco in 1943
.whereas coffee, tea and betel nuts were subjected to duty in 1944, through self contained
pieces of legislation (there were 10 separate Excise Acts and 11 sets of statutory rules in
addition to 5 Acts relating to salt).

The various Acts under which individual excise duties were levied were
consolidated into the Central Excises and Salt Act, 1944 (now Central Excise Act, 1944
with effect from 28 September 1996). The Central Excise Rules were also frarned in
1944. In 2001, the Central Excise Rules, 1944, were replaced by a new set of rules -
Central Excise Rules, 2001, and further replaced by Central Excise Rules, 2002, with
effect from 1 March 2002.

/ 1.3.1 Duties of excise /

./(i) A duty of excise to be called the Central Value Added Tax (CENVAT) on all
excisable goods which are produced or manufactured in India as, and at the rates, set
forth in the first schedule to the Central Excise Tariff Act, 1985 (Section 3).

2
 t'(ii) A s ecial duty of excise, in addition to the duty of excise (Cenvat) specified
above, on excisable goods specified in the second schedule to the Central Excise Tariff
Act, 1985 (Section 3).
-,
I'" (iii) Excise duty on the basis of capacity of production on notified goods is levied by
issue of a notification which provide for the determination of the Annual Capacity of
production of the factory (Section 3A). The Section 3A was omitted from 11 May 2001.

1.3.2 Additional duties of excise

The following are the Additional duties of excise: -

(i) Additional duty of excise at the rate of 15 per cent of the amount of excise duty
leviable under Section 3 of the Additional Duties of Excise (Textile and Textile Articles)
Act, 1978. Goods covered are silk (chapter 50), wool (chapter 51 other than fabrics of
Sub-heading 51.10, 51.11 and 51.12), Cotton (chapter 52), MMF (chapter 54),-MMSF
. (chapter 55), terry towe ling and similar woven terry fabrics (heading 58.02), tulles and
other fabrics (heading 60.02), knitted or crocheted fabrics (chapter 60), metallised yarn
(heading 56.05), embroidery in pieces, in strips or in motifs (heading 58.05).

(ii) The additional duty of excise leviable under Section 3 of the Additional Duties of
Excise (Goods of Special Importance) Act, 1957. The items covered are falling under
chapter 17, 24, 50, 51,. 52, 54, 55, 58, ?9 and 60. The rates are specified in first schedule
to the aforesaid Act of 1957.

(iii) An additional duty at the rate of Rupee one per litre imposed on Motor spirit
commonly known as petrol with effect from 2 June 1998, increased to Rs.1.50 per litre
with effect from 1 March 2003.

(iv) An additional duty at the rate of Rupee one per litre imposed on high speed diesel
oil with effect from 1 March 1999, further increased to Rs.1.50 per litre with effect from
1 March 2003.

(v) The additional duty leviable under Section 3 of the Customs Tariff Act, 1975,
equivalent to the duty of excise for the time being leviable on a like article if produced or
manufactured in India.

(vi) An additional duty of excise at the rateof Re. 1 per kg by way of surcharge has
been levied on tea and tea waste from 1 March 2003.
I .

1.3.3 Other duties

The National Calamity Contingent Duty (NCCD) leviable under Section 136 of
Finance Act, 2001 on certain notified goods of chapter 21, 24, 54 and 87. The domestic
crude oil is also subjected to NCC duty at the rate of Rs.50 per tonne with effect from 1
March 2003 (Upto 29.02.2004). •

1.3.4 Cesses

The following are some of the cesses leviable: -

3
 (i) In terms of Tea Act, 1953, as amended, a cess on tea produced in India is leviable
, at the notified rates.

(ii)' Under the Rubber Act, 1947, a cess on rubber produced .in India is collected at
Rs.l.50 per kllogram ,by .the Rubber. Board (Ministry of Commerce notification'
No.S0I740(E) dated 31 August 1<)98). "

(iii) A cess at 1/8th per cent ad valorem on manufacture of automobiles under

Industries (Development and Regulation) Act, 1951.

(iv) Textile Committee Act, 1963, provide for levy of cess on all textiles and textiles
machineries manufactured in India at such rate not exceeding one per cent ad valorem as
the Central Government may by issue of notification in the official gazette fix.

(v} Under .the Oil Industry (Development) Act, 1974, - a cess at Rs.900 per tonne
(Rs.1800 from 1 March 2002) is leviable on crude oil produced in India and removed to
a refinery or factory; or transferred by the person by whom such item is produced.

(vi) Beedi Workers Welfare Cess Act, 1976 provide for the levy and collection, by
way of cess, a duty of excise on manufactured beedi at the notified rate of Rs.2 per
thousand beedies with effect from 28 June 2000.

(vii) Jute manufactures Cess Act, 1983 provide for the levy and collection, by way of
cess, of a duty of excise on every article of jute manufactured/produced in India, at such
rate not exceeding the rates specified in the schedule to the Act, as amended in 2002.

(viii) A cess on coking coal at RsA.25 per tonne and on non coking coal at Rs.3.50 per
tonne with effect from 8 February 1983 is leviable under the Coal Mines (Conservation
and Development) Act,1974.

(ix) Cess on Iron ore is leviable at Re. one per tonne with effect from 1 September

8 1978 under the Iron Ore Mines Labour Welfare Cess Act, 1976.

Self assessment of duty (~~ w-Ol ,

As per rule 6 of Central Excise Rules, 200112002, the assessee shall himself
assess the duty payable on the excisable goods except in case of cigarettes where
Superintendent or' Inspector of Central Excise shall assess the duty payable before
removal of goods by the assessee. The assessable value shall be determined as per
provisions contained in Section 4 or 4A of the Act read with Central Excise Valuation
(Determination of Price of Excisable Goods) Rules, 2000 and exemption availed under
Section 5A(l) and 5A(2) ofthe Act.

1.5 Provisional Assessment /'

..
- ,- (Rule 7 of the Rules ibid, provides for the procedure for provisional assessment.
As per the Rules where the assessee is unable to determine the value of excisable goods
or determine the rate of duty applicable thereto, he may request the Deputy/ Assistant
Commissioner of Central Excise, as the case may be, in writing giving reasons for
payment of duty on provisional basis and the Deputy/Assistant Commissioner of Central
Excise, as the case may be, may order allowing payment of duty on provisional basis at
such rate or on such value as may be specified by him. Assessee shall be liable to pay

4
interest at pecified rate (Section 11AA or Section 11AB as the case may be) on any
amount payable on final assessment from the first date of month succeeding the month
for which such amount is determined, till the date of paymenu

1.6 Time and manner of payment of duty

While Section 3 of the Central Excise Act, 1944 lays down the taxable event, rule
4, 8 and 8A of the Central Excise Rules, 200112002 (corresponding rules 9 & 49 of
Central Excise Rules, 1944) provide time and manner of payment of duty on removal.
The amount of duty can be paid through debit in personal ledger account (PLA)
maintained by the assessee where amount paid into Bank through Treasury challan
(T.R.6) is credited, and through adjustment in Cenvat credit account of duty paid on
inputs or capital goods brought for use in the manufacture of excisable product. In case
of default, interest at the specified rate for the days of default shall be payable by the
assessee.

The scheme of payment of excise duty on fortnightly basis has been replaced by
payment on monthly basis with effect from 1April 2003. The assessee will be required
to pay duty for particular month by the fifth of the next month .. In case of an assessee
availing exemption based on value of clearances in a financial year, duty shall be paid by \ A-

is" of the following month. However, duty for the month of March will have to be paid
by 31 st March. In case of default, the interest at the prescribed rate (24 per cent) would
be chargeable under rule 8(3) of the Central Excise Rules, 2002.

\
 CHAPTER-2

ORGANISATIONAL SET UP OF CENTRAL EXCISE DEPARTMENT

2.1 Ministry of Finance (Department of Revenue)

The Department of Revenue under the Ministry of Finance controls the revenue
of the Government of India. It is mainly responsible for the following functions: -

(i) All matters relating to levy and collection of Indirect Taxes.

(ii) All matters relating to levy and collection of Direct Taxes.
(iii) Investigation into economic offences and enforcement of economic laws.
(iv) Framing of policy for cultivation, export and fixation of price of Opium
etc.
(v) Prevention and combating abuse of Narcotic drugs and psychotropic
substances and illicit traffic therein.
(vi) Enforcement of FERA and recommendation of detention under
COFEPOSA Act.
(vii) Work relating to forfeiture of property under Smugglers and Foreign
Exchange Manipulators (Forfeiture of Property) Act, 1976 and Narcotics
Drugs and Psychotropic Substances Act, 1985.
(viii) Levy of taxes on sales in the course of inter-state trade or commerce and
replacement of sales tax by additional excise duty"
(ix) Matters relating to consolidation/reduction/exemption from payment of
Stamp duty under Indian Stamp Act, 1899.
(x) Residual work of Gold Control.
(xi) Matters relating to CEGAT/CESTAT.

2.2 Central Board of Excise & Customs (CBEC)

2.2.1 Organisation

The Central Board of Excise and Customs consists of a Chairman and following
five Members:
~ Member (Personnel & Vigilance)
~ Member (Central Excise)
~ Member (Budget)
~ Member (Legal & Judicial and Anti Smuggling, including work relating to
committee of Secretaries)
~ Member (Customs/EP)

2.2.2 Composition and functions

The Central Board of Excise and Customs (CBEC). deals with the tasks of
formulation of policy concerning levy and collection .of ifstoms and Central Excise
duties, prevention of smuggling and administration of matters relating to Customs,
Central Excise and Narcotics (to the extent under CBEC's purview). The Board is the
administrative authority for its subordinate organisations, namely Customs Houses,
Central Excise Commissionerates, Opium and Alkaloid factories, the Central Bureau of
Narcotics and the Central Revenues Control Laboratory.

\
2.2.3 Subordinate Offices

(i) Directorate General of Inspection & Audit, Customs & Central Excise.
(ii) Directorate General of Revenue Intelligence.
(iii) Directorate General of Anti evasion.
(iv) National Academy of Customs, Excise and Narcotics.
(v) Directorate of Organisation and Management Services, Customs &
Central Excise.
(vi) Directorate of Statistics and Intelligence, Customs and Central Excise.
(vii) Directorate of Preventive Operations.
(viii) Directorate of Publicity & Public Relations.
(ix) Central Revenues Control Laboratory.
(x) Directorate of Systems, Customs and Central Excise.
(xi) Directorate of Valuation, Customs and Central Excise; and
(xii) Chief Vigilance Officer
(xiii) Director General of Service Tax.

2.3 Chief Commissioners

The jurisdiction of Chief Commissioners 'is notified by the Ministry of Finance

vide notification No.41/2002 CE (NT) dated 20.12.2002 as amended vide notification
NO.6212003 CE (NT) dated 19.08.2003.

2.4 Central Excise Commissionerates

The Central Excise formations in the country have been organised taking into
account the resultant workload, revenue collections, geographical contiguity, potential
for expansion and other relevant considerations. Each Commissioner is responsible for
all work relating to assessment, revenue collections and monitoring audit, anti-evasion,
adjudication, legal, judicial, administration, and other related items arising in relation to
the administration of the Central Excise Law. The Commissioner is assisted by
Addl./Joint Commissioners. Each Commissionerate is further divided into Divisions
(under the charge of Deputy/Assistant Commissioner of Central Excise) and each
division comprises of some Range offices (under the charge of Superintendent assisted
by Inspectors & office staff). The jurisdiction of the Commissioner of Central Excise is
notified by the Ministry of Finance vide notification NO.1412002 CE (NT) dated
08.03.2003, as amended.

2.5 Commissioner (Appeals)

The appellate machinery of Commissioner (Appeals) deals with appeals against

the orders passed by the officers lower in rank than the Commissioners of Central excise
under the Central Excise Act, 1944. The jurisdiction of the Commissioner (Appeals) is
notified by the Ministry of Finance vide notification No.14/2002 CE (NT) dated
08.03.2002, as amended from time to time. Appeals against the decisions/orders of the
Commissioners of Central Excise and thereof the Commissioner of Central Excise
(Appeals) lie with the Customs, Excise and Gold (Control) Appellate Tribunal
(CEGAT). now renamed as Customs, Excise and Service Tax Appellate Tribunal
(CESTAT).

7
2.6· Computerisation in Central Excise department 3
In view of large volume of transactions, massive paper work and also large
revenue involved, computers have been introduced in the Central Excise department as
early as 1986 to manage the information flow. Computers were also introduced to check
the authenticity of Modvat availment on a number of excisable products because manual
checking is extremely laborious and difficult.

Computerisation in Central Excise department started as pilot project in 1986 in

Delhi and Madras (now Chennai) Commissionerates. The same was extended to other
Commissionerates all over the country with the help of NIC (National Informatics
Centre). NIC monitored the supply of PC-386 & PC-486 machines to the
Commissionerates and the Division from 1991 onwards and also came up with a full-
fledged package SERMON (System for Excise Revenue Monitoring). This package is at
present in use by the department and is being upgraded regularly to suit the budgetary
changes from time to time.

Keeping in view the Department's commitments for enhancing the use of

Information Technology and as per the guidelines given by the Government, all the
Central Excise Range Offices were supplied with Pentium based Personal Computers
with pre-installed Windows Software during the year 1997. Based on the available
Hardware and Software platforms and to make best use of that:-a new package has been
developed on the basis of SARDAR a package developed by Chandigarh, Central Excise
Commissionerate so as to suit the local requirements. This Software package named
GARI (Gearing Access for Range Use) is developed using MS Access, an utility tool of
MS Office. With the help of this package, a Range Officer can input the revenue data
covering production, clearance, revenue etc., assessee-wise and also can generate various
reports which are useful for the Management Information System (MIS).

\
 CHAPTER-3

THE CENTRAL EXCISE ACT, 1944

3.1

3.1.1
-
General

The Act

The Central Excises and Salt Act, 1944 came into force with effect from 28
February 1944 vide FD (CR) notification No. III-DC-Exc dated 26 February, 1944. It
was extended to the state of Jamrnu and Kashmir on 8 October 1954. The Act was
renamed as the Central Excise Act, 1944 with effect from 28 September 1996. The Act
comprises of seven chapters with 40 Sections. The Sections of the Act which are
important from the Central Excise Revenue audit point of view are discussed in this
chapter.

~1.2 Excise duty and sales tax - distinc ion

Primarily, a duty of excise is a duty levied upon a manufacturer or producer in

respect of the commodity manufactured or produced in a factory. It is a tax upon
production/manufacture of excisable goods and not upon the sales or the proceeds of sale
of goods. Therefore, the distinction between the two isr zane is based upon a
manufacturer of goods and the other upon a vendor in respect of his sales. The two are
distinct and separate and there is no overlapping in law.

3.1.3 Excise duty and Customs duty - distinction

It is the movement of the goods across the Customs frontier that attracts the duty
of Customs. What attracts the duty of excise is an industrial activity, namely, the
production or manufacture of goods and in the case of taxes on sale, it is the sale of
goods. In each of these cases, the impost must have sufficient nexus with the particular
activity.

~ 3.2 Definitions - Section 2

/(i) 'Excisable goods'

Section 2(d) of the Act defines "excisable goods" as goods specified in the
chedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and
includes salt.

(ii) 'Manufacture'./

[Section 2(t) of the Act defines 'manufacture' and the term "manufacture"
includes any process: - ~.

(i) incidental or ancillary to the completion of a manufactured product; and

(ii) which is specified in relation to any goods in the Section or Chapter notes
of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to
manufacture; or

9
 (iii) which in relation to the goods specified in the Third Schedule, involves
packing or re-packing of such goods ina unit container or labelling or relabelling
of containers including the declaration or alternation of retail price on it or
adoption of any other treatment on the goods to render the product marketable to
the consumer; J
and the word "manufacturer" 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 engages in their production or manufacture of his own
account.

The term manufacture has been defined by the Supreme Court in the case of
Union ofIndia Vs. DCM Limited {1999 (l ) ELT J.199(SC)} as under: -

"Manufacture" generally understood to mean as bringing into existence a new

substance and does not merely mean to produce some change in substance. A new,
different article must emerge having a distinct name, character or use from
manufacturing activity. )

(iii) 'Goods' /'

\Jhe term "goods" has not been defined in Central Excise Act. However, Section
3 of the Central Excise Act read with entry 84 of List I Schedule VII of the Constitution
provides for levy of excise duty on the "goods" set forth in the Schedule to the Central
Excise Tariff Act, 1985. Article 366(12) of the Constitution which gives it only an
inclusive definition reading as "goods" included all materials, commodities and articles,
is relevant.

It would, therefore, follow from this that for articles to be excisable they should
be "goods" which are capable of being bought and sold, that is to say, which are capable
of being marketed. This criterion is limited in application only in so far as the
excisability of a product is considered) The term "marketability" has been elaborated by
Supreme Court in the case of Bhor Industries Vs. Collector of Central Excise {1989 (40)
ELT 280 (SC)}; and Moti Laminates Vs. Union ofIndia {1995 (76) ELT 241 (SC)}.

3.3 Authority for levy - Section 3

Section 3 of the Act confers authority on the Central Government to levy and
collect duties of excise on all excisable goods produced or manufactured in India in the
manner prescribed. Goods produced or manufactured by or on behalf of Government are
also liable to pay central excise duties.

3.3.1 Determination of the point of Levy

Under Section 3 'ibid, any excisable goods mentioned in the Tariff attracted duty
as soon as it is produced or manufactured. The collection of t e duty is, however, in the
manner prescribed. For the manner of collection of duty, Section 4 of the Act read with
rule 9, 49 of the Central Excise Rules, 1944 and revised, rule 8 of Central Excise Rules,
2002 may be referred to. Normally duties are collected when the goods are cleared from
a factory of production or manufacture or from a warehouse. The Supreme Court in the
case ofWallac Flour Mills case {1989 (44) ELT 598 (Se)} held that although duty is on

10
manufacture yet it is collected at the time of clearance from the factory of
production/warehouse for administrative convenience.

3.3.2 Goods manufactured for captive use are liable to duty

Section 3 does not make any reference to a manufacturer and according to that
Section excisable goods will be liable to duty whether they are meant for own
consumption or for sale. It is well established that in a matter of levy of excise duty, the
notion of Commerce or trade cannot be imparted. (Commissioner of Central Excise Vs.
Asstt. Collector 1978 ELT (J.653) (Mad - DB).

3.3.3 Intermediate goods liable to duty if independently covered

It is now a settled law that for levy of excise duty, the goods brought into
existence must be 'goods' which can be bought and sold in the market. The intermediary
goods are liable to duty if these goods independently fall within the definition of entries
in the schedule to the Tariff.

3.3.4 Branding or affixing label on duty paid goods do not attract duty

Where duty paid goods are marketed by affixing a different brand name, they
would not be liable to duty again because there has been merely a conversion of goods
from one brand name to another brand name which does not amount to "manufacture" to
attract duty (JBA Printing Inks Limited Vs. Collector of Central Excise, 1986 (24) ELT
411 (T); and Lal International (P) Limited Vs. Commissioner of Central Excise {2003
054) ELT 520 (T)}

However, if by virtue of any section/chapter note/notification the act of branding

or re-branding is held as amounting to manufacture, duty would be leviable.

3.4 Forms of levies .,.,..,-

-- \

3.4.1 The rates

The duties of excise are levied as per rates known as tariff rates as laid down in
Schedule to the Central Excise Tariff Act, 1985 read with any other notification issued
by the Central Government under the powers delegated vide Section 5A (1) of the
Central Excise Act, 1944. The rule 8 made under the Act prescribes the manner of
collection of duty and such duties broadly fall into the following four categories: -

(i) Specific rates of duty

Specific rates of duty are those where the rate of duty is fixed per unit or number,
weight, volume or area. Example of these: Cement, Steel products.

ii) Ad valorem rates of duty / ~/

The ad valorem duty is based on value. The rates of duties are prescribed as a
percentage of the value. For this purpose value is arrived at by application of Section 4
or Section 4A of the Act. Most of the items are covered under ad valorem rate.
Examples of this-type are: Cosmetics, Motor vehicles, etc.

/"\
1

./
(iii) Slab rate of duty

In either of the cases stated above viz., specific rates or ad valorem rates of duty,
duties may be fixed at different rates depending on the quantity of goods manufactured
and or cleared or on the varying values of the goods. An example of this can be seen in
the effective rate of duty applicable to soaps falling under chapter 34 and paper falling
under chapter 48.

(iv) Compounded levy

Compounded levies are those where a manufacturer has the option to have the
duties payable by him compounded to a fixed sum paid in advance on a
weekly/monthly/quarterly basis. Here, the basis is not the actual quantity produced nor
the value thereof but the equipment used to produce goods e.g., power looms employed
for producing cotton fabrics; vegetable non-essential oils, depending upon the number of
equipment to be employed by such manufacturer, embroidered fabrics based on the
metre length of the machines intended to be employed during a shift, marble slabs based
on the number and size of the conventional gangsaws installed for the manufacture of
marble slabs and processed fabrics by independent processors based on capacity of
stenter and capacity of the arc furnaces/other furnaces in respect of iron and steel
manufacturing units) The purpose of compounding is to dispense with the detailed
system of maintenance of accounts of production and clearances and is generally applied
in case of small manufacturers. Administrative convenience is another factor in favour
of fixing compounded levies in some cases

3.4.2 Laboratory/chemical tests

(a) A good number of items in the Tariff require laboratory test for their proper
classification and determination of rates. As for example, in the case of mineral oils
(Chapter 27) flameheight and carbon content, viscosity, inter alia, are the important
parameters; in the case of chemicals (Chapter 28 and 29) composition of the products is
the deciding factor and marginal variation in the proportion of ingredients may result in
the classification of a product under a different heading or sub-heading; the
determination of count in the case of cotton yarn and cotton fabrics (Chapter 52) or of
denierage in the case of man made filament yarn (Chapter 54) is crucial, in the case of
internal combustion engines (Chapter 84), electric motors (Chapter 85) or motor vehicles
(Chapter 87) the horse-power of the engine or of the motor constitutes the basis for
differentiation and so on.

b) Chemical tests are invariably conducted and goods assessed provisionally under
rule 7 of the Central Excise Rules, 2002 till finalisation on the basis of accepted results
of technical authorities. There are department control laboratories at important Customs
posts. Doubtful cases are referred to the control laboratories for test and opinion.
Results obtained in these tests are intended to guide the assessing officers to come to a
efinite conclusion regarding the classification of a product.

( Apart from the technical authorities like Chief Chemists, cases are also referred
o Bureau of Indian Standards, Alipore Test House, Director General Technical
De elopmentetc., for technical advice.

12
(d) The classification of item under the Central Excise Tariff generally follows the
pattern given in an internationally recognised code known as the Brussels Tariff
Nomenclature. The Bureau of Indian Standards has also published a number of booklets
defining and specifying electrical, engineering, chemical and other manufactured
products. Sometimes there is reference in the notification to these standards for
classification. Whenever a doubt is felt regarding correct definition or classification of
product, the various publications of Bureau of Indian Standards should be freely
consulted.

3.5 Pre-excise goods

Section 3 authorises levy of duty on all excisable goods produced or

manufactured. The present tariff structure, which is based on the internationally
accepted pattern of Harmonised Description and Coding System covers almost all
commodities. Even the items which do not find a specific mention in the Tariff can be
brought under the sub-heading 'others' appearing under each heading. There cannot be
any goods which can be said to be newly introduced in the Tariff and, hence, if any,
goods are allowed to be cleared free of duty as pre-excise stock, the correctness of such
duty-free clearance needs careful examination.

3.6 Determination of Value - Section4

Section 4 of the Act, as it stood before amendment by- Section 2 of the Central
Excises and Salt (Amendment) Act, 1973 (brought into effect from 1 October 1975 vide
otification No.176175, dated 8 August 1975), was modeled on the lines of Section 30 of
the Sea Customs Act, 1878.

3.6.1 Text of old Section 4 of the Act

(1) Where under this Act, any article is chargeable to duty at a rate dependent on the
alue of the article, such value shall be deemed to be -

(a) the wholesale cash price for which an article of the like kind and quality is
sold or is capable of being sold at the time of the removal of the article
chargeable with duty from the factory or any other premises of manufacture or
production for delivery at the place of manufacture or production, or if a
wholesale market does not exist for such article at such place, at the nearest place
where such market exists,

(b) where such price is not ascertainable, the price at which an article of the
like kind and quality is sold or is capable of being sold by the manufacturer or
producer, or his agent, at the time of the removal of the article chargeable with
duty from such factory or other premises for delivery at the place of manufacture
or production or if such article is not sold or is not capable of being sold at such
place, at any other place nearest thereto. ,..

Explanation-In determining the price of any article under this section, no abatement or
deduction shall be allowed except in respect of trade discount and the amount of duty
payable at the time of the removal of the article chargeable with duty from the factory or
other premises aforesaid.

13
3.6.2 New Section 4 - from 1 October 1975

The Parliament substituted a new Section 4 effective from 1 October 1975 and
brought in the concept of "normal price" charged on sale of the goods in the course of
wholesale trade. This Section is fairly exhaustive and provides for different bases to be
adopted in different circumstances and is aimed at assessment of excisable goods at the
transaction value as far as possible. Section 4 was accordingly recast by making far
reaching changes, and in particular, the provision introduced new concepts of "normal
price", "related person", "price being the sole consideration" etc. apart from recognising
the fact, that certain additional abatements and deductions, in addition to the trade
discount, would be available for the computation of assessable value of excisable goods.
The key words and expressions required to be understood in the context of the provisions
of Section 4, were defined in the Section itself, viz. the words related person, wholesale
trade, place of removal, assessee, value, packing, etc. Also, power was given to the
Central Government to frame Valuation Rules, and accordingly, the Central Excise
(Valuation) Rules, 1975 were framed under Section 4(1) (b) and Section 37 of the Act.

3.6.3 Amendments in 1982

Again, in the year 1982, Section 4 was amended, by inserting one more
Explanation (which was more in the nature of clarification) in Section 4(4), outlining the
scope of the deduction towards excise duty available under Section 4(4)(d)(ii). The
meaning of the expression "effective duty" was set out in the provision itself, so as to
mean, the actual amount of excise duty payable on the excisable goods, after giving

-
effect to exemption notification available thereon.

3.6.4 Amendment in 1996

The decision of the Honorable Supreme Court in MRF's case, 1995 (77) E.L.T.
433, resulted in yet another significant amendment to Section 4 of the Act, by giving
legislative effect to the judicial observations in that case. The Parliament redefined
from 28 September 1996) the words "place of removal" by amending Section 4(4 )(b)
and further introduced sub-clause (ba) in clause (4) of the Act, defining "time of
removal". Accordingly, the expression "place of removal" would now mean the factory
of production or manufacture, a warehouse to which excisable goods manufactured in the
factory are removed without payment of duty, depot, premises of a consignment agent or
other premises from which excisable goods are ultimately sold after their clearance from
the factory.

The above amendment has the effect of including in the value of excisable goods
old at a place other than the factory, all the post manufacturing/removal expenses
in urred from the time of removal from the factory gate till the time they are sold at the
"place of removal". All expenses incurred at the depot or other place where excisable
goods are kept for sale, till they are removed for sale, would be liable to be included in
the assessable value.

3.6.5 New Section 4 from 1 July 2000

Section 4 of the Central Excise Act, as substituted by Section 94 of the Finance

et, 2000 (No.10 of2000) in force froni'>theIst day of July, 2000 is reproduced below:

14
 '4( 1) Where under this Act, the duty of excise is chargeable on any excisable
goods with reference to their value, then, on each removal of the goods, such
val ue shall: -

a. in a case where the goods are sold by the assessee, for delivery at the time
and place of the removal, the assessee and the buyer of the goods are not
related and the price is the sole consideration for the sale, be the
transaction value;

b. in any other case, including the case where the goods are not sold, be the
value determined in such manner as may be prescribed".

(2) The provisions of this Section shall not apply in respect of any excisable
goods for which a tariff value has been fixed under sub-section (2) of Section 3.

(3) For the purpose of this Section,-

(a) "assessee' means the person who is liable to pay the duty of excise under
this Act and includes his agent;

(b)
--
persons shall be deemed to be "related" if-

they are inter-connected undertakings;

11. they are relatives;

111. amongst them the buyer is relativea and a distributor of the

assessee, or a sub-distributor of such distributor; or

IV. they are so associated that t~y have interest, directly or indirectly,
in the business of each other)

Explanation - In this clause;

1. "inter-connected undertakings" shall have the -:meaning

assigned to it in Clause (g) of Section 2 of the Monopolies
and Restrictive Trade Practices Act, 1969; and

11. "relative" shall have the meaning assigned to it in Clause

(41) of Section 2 of the Companies Act, 1956;

c1"place of removal" means-/

t. a factory or any other place or premises of production or
man~facture of the excisable goods;
4'
11. a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of
duty. J
• Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 introduced vide
tification No.45/2000 CE (NT) dated 30 June 2000 (effective from I July 2000) and further amended
Ode notification No.11/2003 CE (NT) dated I March 2003 may be referred to.

15
 111. a depot, premises of a consignment agent or any other place or
premises from where the excisable goods are to be sold after their
clearance from the factory.

(cc) "time of removal" in respect of the excisable goods removed from

the place of removal referred to in sub-clause (iii) of clause (c), shall be
deemed to be, the time at which such goods are cleared from the factory.

from where such goods are removed:)

G; "transaction value" means the price actually paid or payable for the goods,
when~s in addition to the amount charged as price, any amount
that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in
connection with the sale, whether payable at the time of the sale or at any other
time, including, but not limited to, any amount charged for, or to make provision

t
for, advertising or publicity, marketing and selling organisation expenses,
storage, outward handling, servicing, warranty, commission or any other matter;
but does not include the amount of duty of excise, tax and other taxes, if
any, actually paid or actually payable on such goods'.

The Section was further modified with effect from 14.05.2003 by Section 136 of
the Finance Act, 2003 (32 of2003).

ii) The applicability

For applicability of Section 4(1)(a) (transaction value) in a given case, for

assessment purposes, the following requirements should be satisfied: -

a. The goods are sold by an assessee for delivery at the time and place of
removal. The term "place of removal" has been defined basically to mean
. a factory or a warehouse;

b. The assessee and the buyer of the goods are not related; and

c. The price is the sole consideration for the sale.

If anyone of the above requirements is not satisfied, then the transaction value
shall not be the assessable value and value in such case has to be arrived at under the
valuation rules, being notified as provided 'in sub-section 4(1 )(b) above.

(iii) Tariff Values, the assessable value /

Where tariff value has been fixed for any goods, as per provisions of sub-section
(2) of Section3, value under Section 4 is not determinable and the tariff value will be the
assessable value.

(iv) Different transaction value applicable

The new Section 4 essentially seeks to accept different transaction values which
may be charged by the assessee to different customers for assessment purposes so long
as these are based upon purely commercial consideration where buyer and the seller have
no relationship and price is the sole consideration for sale. Thus, it enables valuation of
goods for excise purposes on value charged as per commercial practices rather than
looking for a notionally determined value.

(v) Elements of Transaction value

"Transaction value" includes charges actually paid or payable, expenses incurred

or provided for in connection with the manufacturing, marketing, selling of the excisable
goods to be part of the price payable for the goods sold. In other words, whatever
elements which enrich the value of the goods before their marketing and were held by
Hon'ble Supreme Court to be includible in "value" under the erstwhile Section 4 would
continue to form part of Section 4 value even under new Section 4 definition.

3.7 Remission of duty on goods found deficient in quantity - Section S

By virtue of Section 5 Central Government may, by rules made under this

Section provide for remission of duty of excise leviable on any excisable goods which
due to any natural cause are found to be deficient in quantity (Refer rule 21 of the
Central Excise Rules, 2002 in this regard).
/'\,.) .
3.8 Power to grant exemption from duty of excise - Section SA

As per Section 5A(1) of the Central Excise Act, 1944 the Central Government
may, in public interest, by notification exempt either generally or subject to certain
conditions excisable goods from the whole or any part of the duty of excise leviable
thereon.

(ii) Under Section 5A(2) of the Act, if the Central Government is satisfied that it is
necessary in the Public Interest so to do, it may, by special order in each case, exempt
from the payment of duty of excise, under circumstance of an exceptional nature to be
stated in such order, any excisable goods on which duty of excise is leviable.

(iii) Provision has been made to enable the Central Government to issue explanation

=:
by notification in the Official Gazette to clarify the scope and applicability of any
exemption notification within one year of the issue of such notification.

2002).
Such
n will take effect from the date of the exemption notification itself (11 May

3.9 Registration of certain person - Section 6

Section 6 of the Act provides that any person who is engaged in - (i) the
production or manufacture or any process of manufacture of any specified goods; or (ii)
the whole-sale purchase or sale or the storage of excisable goods, shall get himself
registered with the proper officer in the manner as may be prescribed.

(Rule 9 of the Central Excise Rules (No.2), 200112002 provides for the
registration of such persons subject to such conditions as prescribed in the notification
issued. In this regard Notification No.65/ 2001 CX(NT) dated 17 November 2001 may
be referred to).

17
3.10 Offences and penalties - Section 9

Section 9 providing for offences and penalties, makes a person liable to criminal
offence when he removes excisable goods in contravention of any of the provisions of
the Act or any rule made there under, or when he fails to supply any information which
he is required, by the Central Excise Rules, to supply or when he supplies wrong
information.

Section 9 holds evasion of the payment of duty payable under the Act as an
offence. Evasion of duty is an offence and also incurs a penalty apart from the
prosecution. The word 'evades' or 'evasion' generally means some method or device,
some arrangement or trust or other device resorted to with a view to escape payment of
duty.

In the case of an offence relating to excisable goods, where the duty leviable
there on under the Act exceeds one lakh of rupees the punishment may be for a term
which may extend to seven years and with fine. In other cases the imprisonment may
extend to three years or with fine. If any person convicted of an offence is again
convicted, then, he shall be punishable for the second and subsequent offence, with
imprisonment for a term which may extend to seven years and with fine. However, in
the absence of special and adequate reasons to the contrary to be recorded in the
judgement of the court such imprisonment(s) shall not be for a term less than six months.

3.11 Recovery of sums due to Government - Section 11

3.11.1 By adjustment, attachment or as arrears of land revenue

Section 11, provides for recovery of duty as well as any other sums of any kind
payable to the Central Government under any of the provisions of the Central Excise Act
or the rules made thereunder. The recovery can be made in the following ways: -

a) by adjustment i.e. by deducting the amount payable from the money owing to the
person from whom such sums may be recoverable.

) by attachment and sale of excisable goods, belonging to such person.

c) if the amount payable is not so recovered, by issuing a certificate, signed by such

officer, specifying the amount due from the person liable to pay the same, to the
Collector of the district to recover the amount as arrears of land revenue.

3.11.2 Through Recovery cells

The Government made the provisions of Section 142 of the Customs Act, and the
rules made thereunder applicable to like matters in Central Excise through notification
. 0.48/97 (CX)-NT dated 2 September 1997. This empowered Central Excise officers to
attach and sell movable and/or immovable properties of any person who has failed to pay
any sum due to the Government.

To give effect to these provisions, the Government issued instructions vide

circular No.365/81197 CX dated 15 December 1997 for the creation of Recovery Cells in
each Central Excise Commissionerate. The procedure for implementation of the
Customs (Attachment of Property of Defaulters for Recovery of Government Dues)

18
 9 - wa also laid down. These prescribed that in cases where Government dues
en paid, the Assistant Commissioner of Central Excise would prepare a
ceruncate in the prescribed format (Appendix I) and send it to the Recovery Cell. The
orized Officer in the Recovery Cells would serve a notice upon such person in
c-:Lu.•••••••

Ail~]i1dl'x II requiring him to pay the amount within 7 days. On the failure of the person
_ the specified amount, the authorized officer would proceed in the manner
- - d to realise the amount by attachment and sale of the defaulters' property.

Recovery of duties not levied or not paid or short levied or short paid or
erroneously refunded - Section llA

ection 11A of the Act provides that when any duty of excise has not been levied
aid or has been hort levied or short paid or erroneously refunded, a Central Excise
er may, withih'"six months (one year with effect from 20 May 2000) from the
"ant date, serve, notice on the person chargeable with the duty which has not been
~ ied or paid or short levied or short paid or to whom the refund has erroneously been
de. requiring him to show cause why he should not pay the amount specified in the
ce.

,. The period of six months (one year) shall be substituted with five years if duties of
excise involved is by reason of fraud, collusion or any willful misstatement or
uppression of facts, or contravention of any of the provisions of the Central Excise
et or the rules made thereunder with intent to evade payment of duty.

,. Where duty involved is Rs. one crore or less a notice under this Section shall be
served by the Commissioner or with his prior approval by his subordinate officer.
The prior approval of the Chief Commissioner shall be required where amount
involved in the notice is more than Rs. one crore (Clause omitted from 14 May
2003).

Where the service of the notice is stayed by an order of a court,. the period of such
stay shall be excluded in computing the aforesaid period of six months (one year) or
five years, as the case may be.

By virtue of insertion of sub-section 2A in Section llA with effect from 11 May

2001, the adjudication of demand cases involving fraud etc. shall be finalised, as far as
possible within one year; and in any other case as far as possible within six months from
the date(s) of service of show cause notice(s).

Where, however, the assessee informs the Central Excise Officer in writing that
the amount of duty short levied or short paid, erroneously refunded not involving, fraud,
misstatement etc any intention to evade payment of duty has been correctly paid by him
at his own accord, the Central Excise Officer, on receipt of such information in writing
shall not issue any notice to the assessee in this regard (Section l1A(2B)).

3.13 Interest on delayed payment of duty - SectionllAA

Section l1AA of the Act was inserted by the Finance Act 1995 with effect from
26 May 1995 and provides for the levy of interest, at the notified rates where a person
fails to pay duty within 3 months from the date of determination of duty due under

19
 .on 11A of the Act. This does not cover cases where duty so demanded was as a
offraud etc.

The Central Board of Excise and Customs have fixed the rate of interest at 24 per
per annum with effect from 12 May 2000 for the purpose of this section. The rate of
re est has been reduced to 15 per cent per annum from 13 May 2002. (The 'date of
~ ermination' is held to be the date when notice of determination of duty is received by
essee).

These provisions are subject to provisions of Section 11AB and applicable during
fay 1995 to 10 May 2001.

.14 Interest on delayed payment of duty - Section llAB

,. b Section 11AB of the Act, inserted on 28 September 1996 provides that where any
of excise has not been levied or paid or has been short levied or short paid or
erroneously refunded by reason of fraud etc. with the intent to evade payment of duty
d duty demanded and determined as payable under Section 11A of the Act shall be
aid by the assessee in addition to the interest at the specified rate from the first day of
- e month succeeding the month in which duty ought to have been paid under the Act or
from the date of such erroneous refund till the date of payment.

Where the differential duty becomes payable consequent to issue of orders by the
Board under Section 37B, and such amount of duty payable is voluntarily paid in full,
. -ith right to appeal, within 45 days of such orders, no interest shall be payable and in
other cases the interest shall be payable on the whole amount, including the amount
already paid.

No interest would be leviable if amount of arrears due is voluntarily paid in full

ithin 45 days from the date of such orders, if any, issued under Section 37B of the Act.

A statement showing the rates of interest chargeable/payable under Section

11ANI1ABI11BD is placed (Annexure 3.1).

3.15 Penalty for short levy or non levy of duty in certain cases - Section llAC

Section 1 I AC, inserted on 28 September 1996, provides that where any duty of
excise has not been levied or paid or has been short levied or short paid or erroneously
refunded by reasons of fraud etc. or contravention of any of the provisions of the Act or
the Rules made thereunder with intent to evade payment of duty, the person who is liable
to pay duty shall also be liable to pay a penalty equal to the duty so determined. If
payment with interest is made within 30 days of duty determined under Section 11A
penalty will be restricted to 25 per cent of duty.
.;
The Appellate Authority or the Court can, however, increase or decrease the
amount of duty payable which will be taken into account for levy of penalty.

3.16 Claim for refund of duty - Section llB

Section 11 B, inserted on 17 November 1980, provides that any person claiming

refund of any duty of excise may make an application for refund of such duty to the
Deputy/Assistant Commissioner of Central Excise before the expiry of six months (one

20
_ear from 12 May 2000) from the relevant date in the prescribed proformae alongwith
.' paying documents having paid the duty sought to be claimed as refund and a
ertificate that the incidence of such duty had not been passed on by him to any other
on.

The condition of one year shall not apply where duty is paid under protest.

In case the incidence of excise duty so refundable has already been passed on to
- ers, the amount of such refund shall be credited to the Consumer Welfare Fund.

Under Section 11BB, interest at the rate of nine per cent per annum (reduced to
t per cent per annum from 13 May 2002 and further reduced to 6 per cent from 12
ember 2003) shall be payable for the period from the date immediately after the
iry of three months from the date of receipts of such application till the date of
- d.

_.1
-
Remission of duty - Section HC

Section 11C, inserted on 1 July 1978, provides that Central Government if

led that in practice Central Excise duty leviable on any excisable goods was not
• =: levied or was being short levied as a practice, then the Central Government may by
of a notification in the official gazette direct that such duty shall not be required to
aid in respect of the said goods during the period under consideration and specified
notification.

Amount of such duty if already paid shall be refundable subject to provisions of

ion lIB of the Act.

Duties of excise collected from the buyer to be deposited with the Central
Government - Section HD

Section llD, inserted with effect from 20 September 1991, provides that every
n liable to pay duty under this Act or the Rules made thereunder who has collected
_ amount from the buyer of any goods in a manner as representing duty of excise, shall
\ ith pay the amount so collected to the credit of the Central Government.

This Section has been retrospectively amended with effect from 20 September
vide Section 103 of Finance Act, 2000. The amended Section shall not, therefore,
plicable to any person (viz. other than manufacturer) who has not collected duty of
e., under the Central Excise Act. Section 11 DD has been inserted from 14 May
~ providing for levy of interest on the amount collected in excess of the duty assessed
ermined and paid on excisable goods (Rate of interest at 15 per cent would be
from 12 September 2003).

Price of the goods to indicate the amount of duty paid thereon - Section 12A

per the provisions every person who is liable to pay duty of excise on any
hall at the time of clearance of the goods prominently indicate in all the
- uments relating to assessment, sales invoices etc, the amount of such duty which will
part of the sales price. According to Section 12B full incidence of duty paid to the
rnrnent shall be deemed to have been passed on to the buyer of the goods.

2l
J
 '[Link][llIler elfare fund - Section 12C & 12D

ount of duty of excise referred to in Section 11B(2) or Section 11C(2) or

.: refundable to the assessee or any other money for purpose of the funds,
.,. .ted to the Consumer Welfare Fund established with effect from 20
1.

rral Excise Settlement Commission - Section 31 to 32

ettlement Commission has, interalia, the power to grant immunity from

--==::s;!!::c:jc~_ and immunity, full or partial, from infliction of fine, penalty and interest
as essee makes a true and full declaration of his duty liability. It is a forum
• _ rrender and seeking relief and not a forum for challenging the legality of
~~:::eill~ order)

~ .,.provisions are contained in Section 31 to 32PA of the Act read with Central
-e lement of Cases) Rules, 2001
J
_ ppeals to Commissioner (Appeals) * - Section 35

Any person aggrieved by any decision or order passed under the Central Excise
Central Excise Officer, lower in rank than Commissioner of Central Excise may
o the Commissioner of Central Excise (appeals) within 60 days (prior to 11 May
• e time limit was 3 months) from the date of communication to him of such order.
=:::::::r:.:.ssioner
(Appeal) may, if he is satisfied about the reasons of delay, allow
=r:~5~on of further period of 30 days. Procedure to be followed in appeal is prescribed
_ ··on 35A. The Commissioner (Appeal) shall where it was possible to do so, decide
peal within six months of filing of appeal.

Appeals to Appellate Tribunal' - Section 35B

An appeal can be filed before CEGAT/CESTAT by any person aggrieved by the

i ued by any of the following: -

by the Commissioner of Central Excise.

b the Commissioner (Appeals) under Section 35A.

by the Central Board of Excise and Customs

The appeal shall be filed within 3 months from the date of the communication of
~ rders to the Commissioner of Central Excise or as the case may be, to the party
.,.~rring the appeal.

From 11 May 2002 the time period for disposal of appeals by the CEGA T has
n laid down as three years from the date of filing of the appeal, where it is possible to
·0. It has been provided that where a stay order has been issued the final order shall

• Procedure to be followed for filing appeal before the Commissioner (Appeal), Tribunals, High Courts,
entral Government (for revision application) is prescribed in Central Excise (Appeal) Rules, 2001 issued
.ide notification No.24/200 I CE(NT) dated 21 June 200 I. For further details refer to Chapter 15.

22
 - ssed within 180 days of the stay order, failing which the stay order shall stand
ection 35C).

Deposit, pending appeal, of duty demanded or penalty levied. - Section 35F

person desirous of appealing against the decision of the Central Excise

rities against such decision or order relating to any duty demanded or penalty levied
ending the appeal, deposit with the adjudicating authority the duty demanded and
_ ...ry levied provided that the CEGAT /CEST AT may dispense with such deposit
e to conditions as may be deemed fit.

The Commissioner (appeal) to whom the application for dispensing with the pre
sit has been filed shall decide such application within 30 days from the date of

Period for review of adjudication order by the Board or the Commissioner has
reduced, where possible, to six months, and in any case within one year (Section

pplication to High Court - Section 35G & 35H

Section 35G stand substituted vide clause 136 of Finance Bill 2003.

The concerned Commissioner of Central Excise or the assessee, as the case may
ay within 180 days of service of the notice of an order under Section 35C passed on
er 1 July 2003 (other than orders relating to rate of duty of excise or valuation
~- sj file an application with prescribed fee of Rs.200/- for other parties before the
••.
Court if the High Court is satisfied that the case involves a question oflaw.
ppeal to Supreme Court - Section 35L

.An appeal shall lie to the Supreme Court from: -

any judgement of High Court delivered (i) in an appeal made under section 35-G;
a reference under Section 35H; or (iii) on a reference made under Section 35-G by
ibunal before the 1~1July 2003.

any order passed by CEGAT/CESTAT relating, among other things, to the

c!'i.;?rIrunation of any question relating to rate of duty or to the value of goods for
g.,..y.'~';3-e of assessment.

The appeal shall subject to provisions of Sections 4, 5 and 12 of Limitation Act,

e presented within 60 days from the date of orders or 60 days from the date on
eh orders to be appealed against is communicated to the appellant, whichever is
o "ided that in computing the said period, the time requisite for obtaining a copy
order shall be excluded.

Po er of Central Government to make rules - Section 37

The Central Government is delegated powers, under Section 37 of the Act, to

e rule to carry into effect the purposes of this Act.

23
3.28 Delegation of powers - Section 37A

Under Section 37A, the Central Government, may by notification in the official
gazette direct, that subject to such condition, if any, as may be specified in the
notification, any officer to exercise power under the Act.
3.29 Instructions to Central Excise Officers

Section 37B empowers the Central Board of Excise and Customs to issue orders,
instructions and directions to the Central Excise Officers for the purpose of uniformity in
classification of excisable goods or with respect to levy of duty. The Central Excise
Officers shall observe and follow such orders, instructions and directions (Commissioner
of Central Excise Vs. Dhiren Chem. India {2002 (143) ELT 19 (SC) refers}.

3.30 Publication of rules and notification and laying of rules before Parliament-
Section 38

Section 38 provides that all rules made and notifications issued under the Act
shall be published in the official gazette and also shall be laid as far as possible at the
earliest before each House of Parliament.

3.31 Effect of amendments, etc. of rules, notification or order

Section 38A, inserted with effect from 11 May 2001 provides for the effect of
amendments of any rule, notification or order made or issued under this Act or any
notification or order issued, under certain circumstances.

24
 Annexure 3.1

Rates of interest chargeable/payable under Section llAA, llAB and llBB

SI.
No.
.
Under Section IIAA Under Section IIAB Under Section IIBB

Rate Authority Rate Authority Rate Authority

(i) 20 per cent Notification 20 per cent Notification 15 per cent Notification
per annum No.2 1/95 CE per annum No.22/95 CE (NT) per annum No.22/95 CE
(NT) dated 29 dated 29 May 1995 (NT) dated 29
May 1995 as modified by May 1995
34/96 CE (NT)
dated 9 October
1996.

(i i) 24 per cent Notification 24 per cent Notification 24 per cent Notification

per annum No.39/2000 per annum No.8/2000 CE (NT) per annum No.7/2000 CE
CE (NT) dated 1 March 2000 (NT) dated I
dated 12 May read with 40/2000 March 2000
2000 CE (NT) dated 12
May 2000

(iii) i5 per cent Notification 15 per cent Notification 09 per cent Notification
per annum No. I 8/2002 per annum No. I9/2002 CE per annum No.24/01 CE
CE (NT) (NT) dated 13 May (NT) dated I I
dated 13 May 2002 May 2001
2002

(iv) -- -- 13 per cent Notification 08 per cent Notification

per annum No.66/2003 CE per annum No. I 7/02 CE
(NT) dated 12 (NT) dated 13
September 2003 May 2002

(v) -- -- -- -- 6 per cent Notification

per annum No.67/03 CE
(NT) dated 12
September
2003
I

25
 CHAPTER-4

CENTRAL EXCISE RULES

4.1 Central Excise Rules, 2001

In exercise of the powers conferred by Section 37 of the Central Excise Act, 1944
(1 of 1944) and in super-session of the Central Excise Rules, 1944, the Central
Government vide notification NO.3012001 CE (NT) dated 21 June 2001 issued the
Central Excise (No.2) Rules, 2001 effective from the Ist day of July, 2001. The set of
Rules contain 33 rules. These rules have, however, again been replaced by a new set of
Rules known as Central Excise Rules, 2002, bringing out certain changes in the existing
rules.

4.2 Definition

The definition of the following words has been given under rule (2):

(a) "Act" means the Central Excise Act, 1944 (1 of 1944);

(b) "assessment" includes self-assessment of duty made by the assessee and

provisional assessment under rule7;

(c) "assessee" means any person who is liable for payment of duty assessed or a
producer or manufacturer of excisable goods or a registered person of a private
warehouse in which excisable goods ,are stored and includes an authorized agent
of such person;

(d) "Board" means the Central Board of Excise and Customs constituted under the
Central Board of Revenue Act, 1963 (54 of 1963);

(e) "duty" means the duty payable under Section 3 of the Act;

(f) "notification" means the notification published in the Official Gazette;

(g) "tariff Act" means the Central Excise Tariff Act; 1985 (No.5 of 1986);

(h) "warehouse" means any place or premises registered under rule 9; and

(i) words and expression used herein but not defined and defined in the Act shall
have the meanings respectively assigned to them in the Act.

( 4.3
--
Appointment and jurisdiction of Central Excise Officers
-;;.
(a) Vide rule 3, the Board may, by notification,
,/
(i) appoint such person as it thinks fit to be the Central Excise Officer to
exercise all or any of the powers conferred by or under the Act and these rules;
and

26
--J
 (ii) specify the jurisdiction of a Chief Commissioner of Central Excise,
Commissioner of Central Excise or Commissioner of Central Excise (Appeals)
for the purposes of the Act and the rules made thereunder.

(iii) Any Central Excise Officer may exercise the powers and discharge the
duties conferred or imposed under the Act or these rules on any other Central
Excise Officer who is subordinate to him.

(b) Government have vide notification No. 1412002 CE (NT) dated 08 March 2002,
as amended specified the jurisdictions of Chief Commissioner, Commissioner (Appeals)
and Commissioner of Central Excise, as effective from 1 November 2002 (Notification
N035/2002 CE (NT) dated 24 October 2002 refers).

(c) The notification No.39/2001 CE (NT) dated 26 June 2001 as amended specifies
jurisdiction of the Central Excise Officers

4.4 Duty payable on removal

/'
Rule 4 provides that every person who produces or manufactures any excisable
goods, or who stores such goods in a warehouse, shall pay the duty leviable on such
goods in' the manner provided in rule 8 or under any other law. The goods falling under
chapter 61 or 62, produced or manufactured by a job worker may be removed without
payment of duty and such duty shall be paid by the person who gets these goods
produced or manufactured from the job worker provided further that such person may
authorise the job worker to pay the duty leviable on such goods on his behalf and the job
worker shall undertake to discharge all liabilities and comply with all the provisions of
these rules.

4.5 Date for determination of duty and tariff valuation

"Rule 5 provides that the rate of duty or tariff value applicable to any excisable
goods, other than khandsari molasses, shall be the rate or value in force on the date when
such goods are removed from a factory or a warehouse. In the case of khandsari
molasses, it shall be the rate in force on the date of receipt of such molasses in the
factory of the procurer of such molasses. If manufactured goods are used within the
factory, the date of removal of such goods shall mean the date on which goods are issued
for such use.

--
4.6 Assessment of duty

In terms of rule 6, the assessee shall himself assess the duty payable on any
excisable goods other than cigarettes, where the Superintendent or Inspector of Central
Excise shall assess the duty payable before removal by the assessee.

4.7 Provisional assessment

Rule 7 lays down for the procedure for provisional assessment. As per the rules
where the assessee is unable to determine the value of excisable goods or determine the
rate of duty applicable thereto, he may request the Deputy/Assistant Commissioner of
Central Excise, as the case may be, in writing giving reasons for payment of duty on
provisional basis and the Deputy/Assistant Commissioner of Central Excise, as the case
may be, may order allowing payment of duty on provisional basis at such rate or on such
value as may be specified by him.

4.8 Manner of payment

Rule 8 provides for the manner of payment of duty on excisable products as

detailed below: -

4.8.1 Fortnightly/monthly payment

The duty on the goods removed from the factory or the warehouse during the first
fortnight of the month shall be paid by the 20th of that month and the duty on the goods
removed from the factory or the warehouse during the second fortnight of the month
shall be paid by the s" of the following month: Provided that in the case of goods
removed during the second fortnight of the month of March, the duty shall be paid by
31 st day of March; Provided further that where an assessee is availing of the exemption
under a notification based on the value of clearances in a financial year, the duty on
goods cleared during a calendar month shall be paid by the is" day of the following
month. These provisions existed upto 28 February 2003.

From l " March 2003, the duty on the goods removed from the factory or the
warehouse during a month shall be paid by the s" day of the following month subject to
proviso one and proviso two already applicable.

4.8.2 Payment of interest

From 1 March 2003 onwards, if the assessee fails to pay the amount of duty by
the due date, he shall be liable to pay the outstanding amount alongwith interest at the
rate of two per cent per month or rupees one thousand per day, which ever is higher for
the period starting with the first day after due date till the date of actual payment of the
outstanding amount provided that total amount of interest payable shall not exceed
amount of duty which has not been paid by the due date.

4.8.3 Recovery of duty

The provisions of Section 11 of the Act shall be applicable for recovery of the
duty as assessed under rule 6 and interest under sub-rule (3) of rule 8 in the same manner
as they are applicable for recovery of duty or other sum payable to the Central
Government.

4.9 Registration of assessee

As per rule 9, every person, who produces, manufactures, carries on trade, holds
private store-room or warehouse or otherwise uses excis~91e goods, shall get registered,
provided that a registration obtained under erstwhile rule 174 of the Central Excise
Rules, 1944 shall be deemed to be as valid as the registration made under this sub-rule
for the purpose of these rules;

(ii) The Board, may, by notification, and subject to such conditions or limitations as
may be specified in such notification, specify person or class of persons who may not
require such registration (Notification No.35/2001-CE (NT) dated 26 June 2001, as

28
 ide notification No.65/2001-CX (NT) dated 17 October 2001, may be referred
ill this regard);

(iii) The registration under sub-rule (1) shall be subject to such conditions, safeguards
and procedure as .may be notified by the Board. (Notification No.35/2001 CE (NT),
36/2001 CE (NT) dated 26 June 2001, 65/2001 CE (NT) dated 17 October 2001, as
amended, may be referred to in this regard);

4.10 Daily stock a.~c~_•••

(There is no statutory record prescribed for preparation and maintenance of daily

tock account of manufactured excisable products. Rule 10, however, provides that
every assessee shall maintain proper records, on a daily basis, in a legible manner
indicating the particulars regarding description of goods produced or manufactured,
opening balance, quantity produced or manufactured, inventory of goods, quantity
emoved, assessable value, the amount of duty payable and particulars regarding amount
of duty actually paid. The first page and the last page of the book shall be duly
authenticated by the manufacturer or his Jthorised agent. The records shall be
reserved for a period of five financial years.
,.

.11 ~beremovedoni~

Rule 11 provides that no excisable goods shall be removed from a factory or a

-arehouse except under an invoice (in triplicate) signed by the owner of the factory or
. authorized agent and in the case of cigarettes, each such invoice shall also be
untersigned by the Inspector of Central Excise or the Superintendent of Central Excise
fore the cigarettes are removed from the factory provided that a manufacturer of yarns
...fabrics or readymade garments may remove the said goods under a proforma invoice
signed by him or his authorised agent. The invoice shall be prepared according to the
cific provisions made in this Rule.

Before making use of the invoice book, the serial numbers of the same shall be
- timated to the Superintendent of Central Excise having jurisdiction.

The provision of this rule shall apply mutatis-mutandis to goods supplied by a

- -1 stage dealer or a second stage dealer.

Filing of monthly/quarterly return

Rule 12 provides that every assessee shall submit to the Superintendent of

~ tral Excise a monthly return in proper form, of production and removal of goods and
r relevant particulars, within ten days after the close of the month to which the return
es. The assessee availing exemption on basis of value of goods in a financial year
1 file a quarterly return in proper form within twenty days after close of the quarter.
roformae of Form ERI (earlier RT 12) has been prescribed vide notification
- 8!2001-CE (NT) dated 26 June 2001, further revised under notificatimrNo.71/2003
E • TT)dated 15 September 2003 - as applicable from November 2003).

~. Special procedure for payment of duty

Rule 15 provides that the Central Government may, by notification, specify the
z: in respect of which an assessee shall have the option to pay the duty of excise on
the basis of such factors as may be relevant to production of such goods and at such rate
as may be notified for this purpose. (For goods notified under this rule, refer Chapter 13
of this manual).

4.14 Credit of duty on goods returned to the factory

Rule 16 prescribes the procedure for accountal of duty paid goods returned to the
factory for any reason. The credit of duty paid can be taken subject to conditions
specified therein. Rules 16A, 16B and 16C, however, specify procedure for removal of
goods for job-work, removal of semi-finished goods for certain purposes and for removal
of goods for carrying out tests respectively.

4.15 Removal of goods by a unit in the Free Trade Zone or by a hundred per cent
Export-Oriented Undertaking or by a unit in the Special Economic Zone for
Domestic Tariff Area

Rule 17 provides that for goods removed from a unit in a Free Trade Zone or a
hundred per cent export-oriented unit or a unit in the Special Economic Zone, to the units
in domestic tariff area, such removal shall be made under an invoice by following the
procedure specified in rule 11 and submitting a monthly return (on Form ER 2 as notified
vide Notification No.49/200 l-CE (NT) dated 26 June 2001 and as further revised vide
notification No.7112003 CE (NT) dated 15 September 2003 effective from 1 November
2003) to the Superintendent of Central Excise, within ten days from the close of the
month in respect of the goods removed to domestic tariff area.

4.16 Rebate of duty

As per rule 18, the Central Government may, by notification, grant rebate of duty
paid on exported excisable goods or duty paid on materials used in the manufacture or
processing of such goods and the rebate shall be subject to such conditions or limitation.
if any, and fulfillment of such procedure, as may be specified in the notification. As per
the explanation the "Export" includes goods shipped as provision or as a store for use on
Board a ship proceeding to a foreign port or supplied to a foreign going aircraft.

(Government vide notification No.40/2001-CE (NT) & 41/2001-CE (NT) dated

26 June 2001 as amended have prescribed the rebate to be allowed on exports and the
procedure to be followed).

4.17 Export without payment of duty

Rule 19 provides that any excisable goods may be exported without payment of
duty from a factory of the producer or the manufacturer or the warehouse or any other
premises, as may be approved by the Commissioner and subject to such conditions,
afeguards and procedure as may be notified by the Board. (Notification No.42/2001-CE
T) to 45/2001-CE (NT) all dated 26 June 2001 may be referred to).

4.18 Warehousing provisions

As per rule 20, the Central Government may, by notification, extend the facility
of removal of any excisable goods from the factory of production to a warehouse, or
from one warehouse to another warehouse without payment of duty. (Notification
0.46/2001-CE (NT) dated 26 June 2001 may be referred to in this regard).

30
4.19 Remission of duty

Rule 21 provides that in case of goods having been lost or destroyed by natural
causes or by unavoidable accident or having been claimed by the manufacturer as unfit
for consumption or for marketing, at any time before removal, the Commissioner of
Central Excise may remit the duty payable on such goods, subject to such conditions as
provided in the rule and further conditions as may be imposed by him by order in
writing.

4.20 Access to registered premises /

Rule 22 authorises an officer empowered by the Commissioner in this behalf to

have access to any premises registered under these rules for the purpose of carrying out
any scrutiny, verification and checks as may be necessary to safeguard the interest of
revenue and every assessee shall furnish to the officer empowered under sub-rule Cl), a
list in duplicate, of all the records prepared or maintained by the assessee for accounting
of transactions in regard to receipt, purchase, manufacture, storage, sales or delivery of
the goods including inputs and capital goods.

The rule further provides that every assesseee shall, on demand make available to
the officer empowered under sub-rule Cl) or the audit party deputed by the
Commissioner or the Comptroller and Auditor General of India: -

(i) the records maintained or prepared by him in terms of sub-rule (2);

(ii) the cost audit reports, if any, under Section 233B of the Companies Act, 1956 (1
of 1956); and

(iii) the Income-tax audit report, if any, under Section 44AB ofIncome-tax Act, 1961
(43 of 1961),

for the scrutiny of the officer or audit party, as the case may be.

4.21 Power to stop and search

Rule 23 empowers Central Excise Officer to search any conveyance carrying

excisable goods in respect of which he has reason to believe that the goods are being
carried with the intention of evading duty.

4.22 Power to detain goods or seize goods

Similarly as per rule 24, if a Central Excise Officer has reason to believe that any
goods, which are liable to excise duty but no duty has been paid thereon or the said
goods were removed with the intention of evading the duty payable thereon, he may
detain or seize such goods.

4.23 Confiscation and penalty

Rule 25 provides that subject to the provisions of Section 11 AC of the Act, if

any producer, manufacturer, registered person of a warehouse or a registered dealer: -

31
(a) removes any excisable goods in contravention of any of the provisions of these
rules or the notification issued under these rules; or

(b) does not account for any excisable goods produced or manufactured or stored by
him; or

(c) engages in the manufacture, production or storage of any excisable goods without
having applied for the registration certificate required under Section 6 of the Act; '-
or

(d) contravenes any of the provisions of these rules or the notifications issued under
these rules with intent to evade payment of duty,

then, all such goods shall be liable to confiscation and the producer or manufacturer or
registered person of the warehouse or a registered dealer, as the case may be, shall be
liable to a penalty not exceeding the duty on the excisable goods in respect of which any
contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause
(d) has been committed, or rupees ten thousand, whichever is greater.

4.24 Penalty for certain offences

Rule 26 provides that any person who acquires possession of, or is in any wa .
concerned in transporting, removing, depositing, keeping, concealing, selling or
purchasing, or in any other manner deals with any excisable goods which he knows r
has reason to believe are liable to confiscation under the Act or these rules, shall be liable
to a penalty not exceeding the duty on such goods or rupees ten thousand whichever i
greater.

4.25 General penalty

Rule 27 provides that in a case of breach of these rules, where no other penalty is
provided in the Rules or in the Act, the person shall be punishable with a penalty which
may extend to five thousand rupees and with confiscation of such goods.

4.26 Confiscation & disposal of property

While rule 28 provides that when any goods are confiscated under these rules,
such things shall thereupon vest in the Central Government, the rule 29 provides that
such confiscated goods, in respect of which the option of paying a fine in lieu of
confiscation has not been exercised, subject to conditions, shall be sold, destroyed or
otherwise disposed off in such manner as the Commissioner may direct. However, if the
owner of the goods, the confiscation of which has been adjudged, exercises his option to
pay fine in lieu of confiscation, he may be required to pay such storage charges as may
be determined by the adjudication officer (rule 30).

4.27 Power to issue supplementary instructions

As per powers delegated under rule 31, (rule 30 of Rules (No.2) of 2001) the
. Board or the Chief Commissioner or the Commissioner may issue written instructions
providing for any incidental or supplemental matters consistent with the provisions of the
Act and these rules.

32
 CHAPTER-5

MODVAT CREDIT AND CENVAT CREDIT

5.1 MODV AT (Modified Value Added Tax) Scheme on inputs

,.---- ,

/ 5.1.1 Introduction /

As one of the measures contemplated in the long term fiscal policy announced by
the Government in December 1985, a new mode of Central Excise taxation procedure
called 'Modified Value Added Tax (MODVAT), was introduced from 1 March 1986.
Hitherto excise duty was charged on every stage of production of excisable product
subject to availment of proforma credit (under erstwhile rule 56A) of duty paid on
specified inputs declared by the manufacturer. The system of proforma credit could not
prevent the cascading effect of duty paid on every stage of production. This cycle was
repeated till primary raw material had passed from one manufacturer to another till it had
reached the final stage of manufacturing of an article to be passed on to the consumer.
Under the MOD VAT each intervening manufacturer was able to take credit of the duty
paid on the purchase of raw material. In other words, he was to pay the duty only on the
value that he had added to his inputs (excluding the duty element) in turning them into
finished products.

his scheme was basically a duty collecting procedure which was designed to
allow relief to the manufacturer on the duty element borne by him in respect of the raw
materials (inputs) used by him. The scheme renamed as Cenvat scheme with effect from
1 April 2000 was replaced by the Cenvat Credit Rules from 1 July 2001

5.1.2 Coverage

(i) C
The Modvat scheme was introduced with effect from 1 March 1986 and initially
it covered input goods falling under 38 chapters and output goods falling under 37
chapters of the Central Excise Tariff Act, 1985. It was extended later to further chapters,,}-.
The position of the inputs and final products covered under the MODVAT Scheme from
time to time was as follows: -

SI. No. Date of effect No. of Chapters covered

Inputs Outputs

Newly covered Total Newly covered Total

1. 01.03.1986 38 38 37 37.
Note: Additional item relating to input was Chapter 48

2. 29.07.1986 01 39 01 38
Note: Chapter 91 was added under input and output.
,..,
4'
.). 01.03.1987 37 76 38 76
Note: Extension of the scheme to other inputs

(ii) The result was that with effect from 1 March 1987 almost all commodities except
tobacco products, minerals, matches, specified- chemicals and textiles and textile
products were covered under the MODV AT Scheme. As on 1 March 2003 the scheme

33
 covered all products except light diesel oil, high speed diesel oil and motor spirit
commonly known as petrol.

5-.1.3 Administrative Measures

For administration of the Scheme a new Section AA - credit of duty paid on

excisable goods containing rules 57A to 571 was introduced in Chapter V of the Central
Excise Rules, 1944 with effect from 1 March 1986. This was followed by issue of
notifications by the Government and instructions by the Board from time to time in
further extension of the scheme. These rules were further revised as rule 57AA to 57AK
with effect from 1 April 2000 and remained in force till 30 June 2001 before the new
Cenvat Credit Rules came into existence.

5.2 Modvat credit on capital goods

~:?1 Introduction ~

For the purpose of keeping investment decisions tax neutral, it was decided by
the Government to allow credit of duty paid on Capital goods also. ccordin 1 , the
scheme introduced through Finance Act 1994 allowed credit of duty paid on Capital
goods used in the manufacture of excisable goods specified in the Table annexed to rule
57Q(l) for being utilised for payment of duty on the final products also specified in the
Table.

5.2.2 Coverage

MODV AT credit was allowable on the specified capital goods falling under
chapters 82, 84, 85 and 90 of the Tariff and components, spares and accessories of these
specified Capital goods. Besides, the following Capital goods were also eligible: -

(i) Moulds and dies,

(ii) Refractories and refractory materials,

iii) Tubes and pipes and fittings thereof, used in the factory,

iv) Pollution control equipment,

) Grinding wheels and the like goods falling under sub heading 6801.10,

(i) Goods falling under heading 68.02, and

vii) Lubricating oils, greases, cutting oils and coolants.

- .2.3 Final products covered

.4
The Capital goods enlisted above were entitled for MODV AT credit only if they
were used for manufacture of any final goods as specified in the schedule to Central
Excise Tariff Act. 1985 other than the following: -

i) all goods falling under chapter 24, and

34
(ii) all goods falling under heading 36.05 or 37.06

(iii) ingots and billets of non alloy steel falling under sub headings 7206.90 and
720'1.90, manufactured in an induction furnace unit, whether or not any other goods were
produced in such induction furnace, and hot re-rolled products of non alloy steel falling
under sub headings 721l.11, 721l.19, 721l.30, 721l.52, 721l.59, 721l.60, 721l.92,
7211.99, 7213.90,7214.90, 7215.90, 7216.10 and 7216.90 on which duty was paid under
Section 3A of the Central Excise Act, 1944.

5.3 Cenvat Credit Rules

5.3.1 Introduction

ENVAT Credit Rules, 2001 were issued vide notification No.31/2001 CE (NT)
dated 21 June 2001 and made effective from 1 July 2001 as an independent set of rules
under the Central Excise Act, 1944. These rules introduced simplified CENV AT
provisions and procedures for allowing credit of duty paid on specified Inputs and
Capital goods used in or in relation to the manufacture of specified final products,
whether directly or indirectly and whether inputs contained in the final product or not
and Capital goods used in the factory of the manufacture of the final produ~ The credit
of duty so allowed can be utilized for payment of duty leviable on any of the final
product or for payment of duty on inputs or Capital goods cleared as such subject to the
conditions laid down in the rules. The Cenvat Credit Rules 2001, have again been
replaced with new Cenvat Credit Rules, 2002, made effective from 1 March 2002.
"
5.3.2,~ Salient features

(i) Definitions

Certain definitions have been incorporated in rule 2 of the Credit Rules itself.
The definition of 'Capital goods' is comprehensive and would include all goods falling
under chapter 82, 84, 85, 90, heading 68.02 and sub-heading 6801.10,. pollution control
equipments, components, spares and accessories of above said goods, other Capital
goods like moulds and dies, refractories and refractory materials, tubes and pipes and
fitting thereof; storage tank used in the factory of the manufacturer of final products, but
does not include any equipment or appliance used in an office. The components, spares
and accessories may fall under any Chapter but they should be components, spares and
accessories of the specified final products. Storage tanks have been added to the list of
Capital goods with effect from 1 March 2001 An explanation has been added to clarify
the scope of inputs i.e. Inputs include good-s used in the manufacture of Capital goods
which are further used in the factory of the manufacturer. The term 'input' means all
goods except light diesel oil Cl March 2003), high speed diesel oil and motor spirit,
commonly known as petrol, used in or in relation to the manufacture of final products
whether directly or indirectly or whether contained in the final product or not, and
includes lubricating oils, greases, cutting oils, coolants, accessories of the final products
cleared along with the final product, goods used as paints, or as packing material, or as
fuel, or for generation of electricity or steam used for manufacture of final products or
for any other purpose, within the factory of production. The final products have also
been defined as all excisable goods other than matches.
 Duties covered
,t

Rule 3 provides certain type of duties to be taken as credit subject to certain

onditions. The rule also allows credit of additional duty leviable under Section 3 of
C toms Tariff Act, on goods falling under heading 98.01 of the First Schedule to
oms Tariff Act. This rule also provides manner of utilization of CENV AT credit in
ifferent situation. With effect from 1 April 2003, while paying duty the Cenvat Credit
1be utilised only to the extent such credit is available on the last day of the month for
.ment of duty relating to the month.

ill Conditions for availment

Rule 4 provides for different conditions for allowing CENV AT credit in different
situations for Inputs and Capital goods. Some of the provisions are given below: -

Cenvat credit may be taken in full immediately on receipt of Inputs in the factory
except goods of Chapter 61 & 62). On Capital goods credit of an amount not exceeding
:0 per cent of duty paid in the same financial year. The balance credits may be taken in
an subsequent year provided that Capital goods other than components, spares and
cessories, refractories and refractory material, moulds and dies etc. are in the
ssession and use of the manufacturer of final products in the subsequent years.

) Capital goods acquired on lease, hire purchase or loan agreement are eligible.

Credit is admissible on inputs cleared to job-workers but received back after

rocessing within 180 days.

d) Credit is not allowed on that part of the value of Capital goods, which represent
the amount of duty claimed as depreciation under Section 32 of the Income Tax Act,
1961.

e) Credit is allowed in respect of jigs, fixtures, moulds and dies sent to the job-
" orkers for the production of final product.

f) The Commissioner having jurisdiction over the factory of the manufacturer of

final products who has sent the inputs to the job worker, may, by an order valid for a
financial year; allow final products to be cleared from the premises of the job-worker.
This is, however, subject to such conditions safeguarding interest of revenue imposed by
the Commissioner.

(iv) Refund of credit

Rule 5 of the Credit Rules is regarding refund of CENV AT Credit. In this

connection procedure laid down under notification NO.l112002 CE (NT) dated 1 March
2002 may be referred to. ~

(v) Credit of common input

Rule 6 explains obligation of manufacturers of dutiable and exempted goods,

especially the procedure for taking credit towards final dutiable products and exempted
products.

36
 I .

Duty paying documents

Rule 7 specifies documents on which CENV AT credit can be taken. An

lanation to this rule provides for the meaning of "first stage dealer" and "second stage
er". It also provides for maintenance of accounts by first and second stage dealer.
burden of proof regarding admissibility of CENV AT credit shall lie upon
ufacturer taking such credit. The manufacturer of final product shall submit monthly
re in specified proformae within 10 days from the close of each month. In respect of
ufacturer availing exemption on value or quantity based in a financial year, he shall
- submit a return by the zo" of the month following the quarter.

Transfer of credit

Under rule 8, it has been provided that the manufacturer shall be allowed to
fer CENV AT credit lying unutilized in his accounts to such transferred, sold,
erged, leased or amalgamated factory on account of shifting his factory to another site
~ factory transferred due to change in ownership on sale, merger, amalgamation, lease
,..transfer of a factory to a joint venture with specific provision for transfer of liabilities
6 uch factory. This is allowed only if stock of inputs as such or in process or capital
_ ds is also transferred to new site and the same is duly accounted for to the satisfaction
f the Commissioner ([Link] Commissioner with effect from 1 March 2003).

iii) Transitional provisions

Transitional provisions are specified in rule 9. Any amount of credit earned, by

ufacturer under this rule and remaining unutilized on that day shall be allowed as
AT credit under these Rules and allowed to be utilized. However, certain
~ trictions are imposed in this rule.

) Special dispensation for North East region

Provisions for special dispensation in respect of inputs manufactured in factories

ocated in specified areas of North-East region, Kutch (Gujarat), Jammu & Kashmir and
tate of Sikkim are contained in rule 10.

) Deemed credit on notified goods

Power of Central Government to notify goods for availment of deemed credit are
contained in rule 11. Accordingly, certain inputs have been notified on which the duties
of Excise or additional duties paid shall be deemed to have been paid at the prescribed
rate and allow credit of such amount subject to certain conditions (In this connection
notification No.52/2001 CE (NT) to 55/2001 CE (NT) dated 29 June 2001, as amended
and 612002 CE (NT) dated 1 March 2002 may be referred to).

(xi) Recovery of credit wrongly taken

Recoveries of credit wrongly taken are governed by rule 12. Where CENV AT
credit has been taken or utilized wrongly or on account of fraud, willful mis-statement,
collusion or suppression of facts etc., the same along with interest shall be recovered
from-manufacturers and the provision of Section 11-A, 11-AA and 11-AB of the Central

37
Excise Act, 1944 shall apply for effecting recoveries. In case of fraud etc., the
manufacturers shall also be liable to pay penalty under provision of Section 11-AC.

xii) Confiscation and penalty

Provisions for confiscation and penalty, for contravention of the Credit Rules are
ontained in rule 13.

-.3.3 Important clarifications

i) Credit of inputs lying in stock admissible

Once the SSI exemption limit of Rs.1 00 lakh is crossed and assessee starts paying
duty, he is eligible to take CENV AT credit in respect of inputs lying in stock, on the
inputs contained in finished goods lying in stock and on the inputs in process. For this
purpose, it is obligatory on the part of the assessee to quantify the amount of admissible
redit on the basis of documentary evidence and records maintained for this purpose
inistry of Finance letter [Link].345/2/2000 TRU dated 29 August 2000).

ii) Waste and scrap are final product

The CENV AT credit can be utilised for payment of duty on waste and scrap as
waste and scrap are 'final products' within the definition given in the Credit Rules
Ministry of Finance letter [Link].345/2/2000 TRU dated 29 August 2000).

iii) Raw material for packing material- credit admissible

CE VAT credit is permissible on the ' raw material' used for making packing
material. This is for the reason that the packing material being an input, the raw material
used for making packing material is also to be construed as inputs used in or in relation
to the manufacture of finished products (Ministry of Finance letter [Link].345/2/2000
TRU dated 29 August 2000).

(iv) . Clearance of inputs, capital goods as such for export

There is no bar for a manufacturer to remove the inputs or capital goods as such
for export under bond (Ministry of Finance letter [Link].345/2/2000 TRU dated 29 August
2000 and Circular No.2831117/CX dated 31 December 1996).

(v) Credit on capital goods received before April 2000

Manufacturer is entitled to take the CENV AT credit in a situation where capital

goods were received before 1 April 2000 and also installed before that date but
MODV AT/CENV AT was not taken due to some reason prior to 1 April 2000 because
even though the modvat credit was not taken by the manufacturer, the modvat credit had
been "earned" by him (Ministry of Finance letter [Link].345/2/2 00 TRU dated 29 August
2000).

(vi) Credit to be taken immediately on receipt of inputs

CENV AT credit is required to be taken immediately on receipt of inputs in the

factory. This, however, does not mean that if the manufacturer does not take credit as

38
soon as the inputs are received in the ,factory, he would be denied the benefit of
CENVAT credit (Ministry of Finance letter [Link].345/2/2000 TRU dated 29 August
2000).

(vii) Credit on project imports

In respect of Capital goods, which are included in the project import, the
CENV AT credit shall be admissible only to the extent of an amount not exceeding 50 per
cent of the Additional Duty of Customs paid on such Capital goods in the same financial
year and balance in the subsequent financial years. However, on the other materials,
which are not in the nature of capital goods, the CENV AT credit of the Additional Duty
paid shall be allowed to the full extent (Ministry of Finance letter [Link].345/2/2000 TRU
dated 29 August 2000 and Circular No.490/56/99 CX F. No.356118/99 TRU dated 25
October 1999).

(viii) AC, refrigerating equipment and Computers to be used in factory

Air-conditioners and refrigerating equipment and computers would be eligible to

CENV AT credit as capital goods. The only condition is that the manufacturer should use
them in the manufacture of final product. For example, an air-conditioner used in the
office premises or a computer used in the office premises of the factory shall not be
eligible to CENV AT credit.

(ix) Credit on inputs contained in waste, refuse or by-product

CENV AT credit shall be admissible in respect of the inputs contained in any of

the aforesaid waste, refuse or by product. Similarly, CENV AT cannot be denied ifthe
inputs are used in any intermediate product even if such intermediate product is exempt
from payment of duty. The basic idea is that CENV AT credit is admissible so long as the
inputs are used in or in relation to the manufacture of final products, and whether directly
or indirectly (Ministry of Finance letter [Link].345/2/2000 TRU dated 29 August 2000).

x) Input/capital goods cleared to job worker

If the inputs or capital goods are cleared to a job worker for job-work, they
hould be received back within 180 days. If they are not received, the manufacturer shall
debit the CENV AT credit attributable to such inputs or capital goods. However, the
manufacturer shall be entitled to take CENV AT credit as and when the goods sent to the
job worker are received back. The final products can also be permitted to be cleared
from the premises of the job-worker on payment of duty or for export subject to
permission granted by the Commissioner of Central Excise having jurisdiction over
principal manufacturer.

i) Inputs/Capital goods purchased from dealers

The CENV AT credit can be taken when the Inputs or Capital goods are
"'"
purchased from the first stage dealer or from the second stage dealer. These dealers
should be registered under rule 9 of the Central Excise Rules, 200112002. The other
rocedural requirements in respect of first stage dealer and second stage dealer continue
in the case of Modvat Rules.

39
i xii) Installation of capital goods not a pre-requisite

In the case of Capital goods, the CENV AT rules (1 April 2000) do not provide
tallation of Capital goods as a pre-requisite for taking CENV AT credit. The 50 per
ent of credit can be taken during the year the Capital goods are received in the factory,
• e remaining 50 per cent of credit may be taken in the subsequent financial year subject
to certain conditions.

xiii) Prescribed documents for credit

The documents on which CENV AT credit can be taken have been prescribed to
a able verification, where needed, by the department. The admissibility of the amount
. CENV AT credit should be verified from the records of the manufacturer, including
. e payment made to the sellers of Inputs and Capital goods. The basic responsibility is
_ n manufacturer to prove that Inputs or Capital goods were duty paid and were used
_~him for the intended purpose.

40
 CHAPTER-6
\:" ....
CLASSIFICATION OF GOODS

6.1 Introduction

The nature, character, description and sometimes the use of the excisable goods
are relevant in deciding whether they are covered by the descriptions given against the
items in the Central Excise Tariff. Prior to 28 February 1986, the classification of the
excisable goods was done as per tariff items 1 to 68 specified under first schedule to the
Central Excises and Salt Act, 1944. The tariff items were replaced by chapter headings
and sub-headings under schedule to the Central Excise Tariff Act, 1985 (as effective
from 28 February 1986).

Although the Central Excise Tariff Act provides a very comprehensive schedule
for classification which is in alignment with the internationally accepted harmonised
ystem of Nomenclature and it has been the attempt of Government to rationalise the
Tariff structure and reduce the number of duty slabs, still the classification problems
have provided an incentive to manufacturers to evade payment of Central Excise duty b
wrongly classifying a product claiming that: -

(i) the product is not excisable;

(a) it is not covered by the Tariff,

(b) it is not akin to any product in the Tariff,

(c) it does not answer to the description of goods being unstable,

unmarketable, not sold or incapable of being sold in the market, or cannot be sold
under the law (example being unsafe or hazardous, explosive, etc.); and

(d) the goods are in the nature of waste and scrap and, therefore, beyond the
purview of the Tariff on account of non-marketability.

ii) the goods are covered by an exemption notification;

(a) the end-use condition is claimed to have been met,

(b) the raw material is as specified in the notification,

(c) the process is the one specified in the notification; and also that.

iii) the goods are entitled to a lower rate of duty.

.2 Determination of classification

.2.1 Basis of determination

Classification has to be determined on the basis of: -

1 A plain reading of the description as appearing in the headings and sub-headings

fthe schedule to the Central Excise Tariff Act, 1985.

41
..
~~~ -------------------~
(ii) Chapter notes.

(iii) Section notes.

(iv) Interpretative rules .

•
However, goods that are not specifically covered by any description as given in
the Tariff heading/sub-heading should be classified as they are generally understood. If
the common meaning does not suffice, then how the product is understood as in the
commercial parlance shall be the basis. That is to say, the description of the goods
should be the one by which the goods are actually known in the market and not the
description, given by the manufacturer on his declaration, that should not be
mechanically accepted if it has been distorted or invented by the manufacturer to suit his
purpose of paying lesser duty or no duty at all.

6.2.2 Principles of classification

(i) Specific description preferred over general - Specific description in a Tariff

entry is preferred over a general entry (for example, a steel table will be classified as
steel furniture in preference to classification as an article of steel).

ii) Section notes override chapter notes - Section notes override chapter notes,
both define and govern the scope and application of the Tariff entries in the headings and
ubheadings.

iii) Titles for ease of reference only - Titles of sections and chapters have been
provided for ease of reference only. For the purpose of classification of goods, it is the
actual description of goods as given in the entries under the sub-headings and headings
that should be seen.

I iv) Titles not for use when headings, subheadings are clear - The titles of
ections cannot be referred to for the purpose of construing the provisions of the sub-
eadings or headings when the words used are clear and unambiguous .

.) Explanatory notes to HSN have no legal backing - The Explanatory notes to

• e HSN do not have a legal backing unlike the Chapter notes or Section notes given in
- e Tariff. They have only persuasive value in determining the scope of each heading
sub-heading. Moreover the HSN has not been adopted in it's entirety. Its scope has
en abridged or enlarged (for example, Pan masala, which is not an internationall
recognized product appears in the Indian Tariff). However the Explanatory notes can
rovide valuable insight into the scope of different headings .

.2.3 Systematic approach

A systematic approach to the classification of goods involves the following

quence: -

Goods should be classified with reference to the description given in the entries
der the sub-heading and headings and the relative Chapter notes and Section notes. If
,...,.uired, the HSN (Harmonized System of Nomenclature) should be referred to for a
earer understanding of the scope and meaning of the sub-headings, headings and
~ ative Section/Chapter notes.

42
(ii) Section notes and Chapter notes must be seen because many goods that answer to
the description under one sub-headinglheading also appear to be classifiable under
another sub-headinglheading. Further, Section/Chapter notes define and govern the
scope of the sub-headings/headings by giving definitions for words like 'steel', etc.

(iii) If appropriate classification is not possible on the basis of headings/sub-headings

alone, Interpretative Rules given in the Central Excise Tariff Act, 1985 may be
referred to.

6.3 The Central Excise Tariff Act, 1985

6.3.1 The salient features

(i) Based on the recommendations of the Technical Study Group set up in 1984, the
Central Excise Tariff has been delinked from the Central Excise Act, 1944 and is an
independent enactment.

(ii) Central Excise Tariff has been made more detailed and comprehensive after
taking into account all technical and legal aspects.

(iii) It is based on a system of classification derived from international convention of

"Harmonised Commodity Description and Coding System' (HSN) with such
"Contractions or Modification" as are necessary to fall within the scope of levy of
Central Excise duty.

iv) Goods of the same class have been grouped together to enable parity in treatment.

(v) It contains Section/Chapter notes giving detailed explanation as to the scope and
ambit of the respective Section/Chapter. These notes have been given statutory backing
and have been incorporated at the top of each Section/Chapter.

(vi) Special provision has been incorporated in respective chapters in relation to the
goods which pose problem in the matter of levy of excise duty.

vii) Interpretative Rules have also been provided to serve as statutory guideline for
interpreting the Tariff schedule.

viii) To preserve by-and-large, the existing duty structure to the extent possible.

ix) Government, for the first time, has been given the power to raise duty through
notification in certain circumstances but subject to conditions provided in the processed
enactment.

.) Present practice of granting exemption under Section 5A of the Central Excise

Act, 1944, has been continued.
4
xi) It adopts the principle of classifying all goods beginning with the raw material
and ending with the finished products within the same Chapter. Tariff does not
: tinguish between the raw materials and semi-manufactured products and finally
manufactured products except for a few exceptions. The Tariff is designed to group all
goods relating to the same industry and all the goods obtained from the same raw
aterial under one Chapter in a progressive manner.

43
(xii) Tariff Schedule in all, contains 96 Chapters grouped in twenty Sections. Each of
these twenty Sections relates to a broad class of goods such as Section I relates to animal
and dairy products, Section VI relates to all products of chemical and allied industries,
whereas Section IX relates to textiles and textile articles. Each of these Sections has
further been divided into various chapters and each chapter contains goods of one class.

(xiii) Each chapter has been further divided into various headings depending upon
different type of goods belonging to the same class of products. These headings have
further been divided into sub-headings.

6.3.2 Use of digit system

The excisable goods under new Central Excise Tariff have been classified
basically using four digit system, with two more digits added for further sub-
classification wherever needed. All the sub-headings are in six digits of which first two
digits relate to the chapter number, next two relate to the position of the goods in heading
and last two relate to the further sub-classification of subject goods. In a nutshell, the
concept of 'tariff items' has been replaced by 'chapter', sub-items' have been replaced
by 'headings' and clauses of sub-items have been replaced by 'sub-headings'.

6.3.3 Use of Dash System

The system of numbering of headings and the sub-classifications adopted in the

new Central Excise Tariff follows the scheme as in the Harmonised System of
omenclature. The scheme has been outlined in the General Explanatory Notes
contained in the Schedule to the new Central Excise Tariff. As may be observed from
the Schedule, besides the heading Nos. and sub-heading Nos. a system of dashes has also
been adopted for indicating sub-classification of the heading or of a sub-classification, as
indicated in Note 1 of the General Explanatory ~otes given in the 1st Schedule,

(i) where the description of an article or group of articles under a heading is

preceded by "-", (single digit) the said article or group of articles shall be taken to
be a sub-classification of the articles or group of articles covered by the said
heading.

(ii) where however, the description of an article or group of articles (in double
digit) is preceded by "-", (single digit) the said article or group of articles (in
double digit) shall be taken to be a sub-classification of the immediately
preceding description of article or group of articles which has "-" (single digit).

The principles underlying the system of numbering are as follows: -

(1) Where there is no sub-classification of goods covered under a heading,

the numbering is as follows: -
Heading Sub-heading Descriptiori" of goods
o. No.
(1) (2) (3)
40.03 4003.00 Reclaimed rubber in primary forms or in plates,
sheets or strip

44
 (2) Where there is sub-classification of goods under a heading, but there is
no further sub-classification, the numbering is as follows: -
(1) (2) (3)
25.02 Cement clinkers; cement, all sorts
2502.1 0 - Cement clinkers
2502.20 - Grey portland cement (including ordinary portland
cement, portland-pozzolana cement and portland slag
cement), masonry cement, rapid hardening cement, low-
heat cement and water-proof (Hydrophobic) cement.
2502.30 - Aluminous cement (Cement fondu)
2502.40 - Sagol; ashmoh
2502.50 - High alumina refractory cement
2502.90 - Other
(3) Where there is sub-classification of the goods under a heading, as also a
further sub-classification of the sub-classified goods, the numbering is as
follows: -
(1) (2) (3)
40.08 Plates, blocks, sheets, strip, rods and profile shapes,
of vulcanised rubber other than hard rubber
- Of cellular rubber:
4008.11 -- Plates, blocks, sheets and strip
4008.19 -- Other
- Of non-cellular rubber:
4008.21 -- Plates, sheets and strip, for resoling or repairing or
retreading rubber tyres
4008.29 -- Other
6.3.4 Use of sub-heading

The determination of the sub-heading shall be according to the terms of that sub-
heading and any related sub-heading. Rule I to 4 of the Interpretative Rules apply
mutatis mutandis, for the purpose of determining sub-heading on the understanding that
only sub-heading at the same level aiecomparable.

Therefore. under this rule one dash sub-heading can be compared only with
another one dash sub-heading in a particular heading and a two dash sub-heading in a
particular beading and a two dash sub-heading can be compared only with another two
dash sub-heading.

Thus, when considering the relative merits of two or more one-dash subheadings
within a single heading in the context of an article which can be classified in either of
these sub-headings, their akinship in relation to the given article
,. is to be assessed solely
on the basis of the texts of the competing one-dash subheadings. When the one-dash
subheading that is most specific has been chosen and when that subheading is itself
subdivided, then, and only then, shall the texts of the two-dash subheadings be taken into
consideration for determining which two-dash subheading should be selected.

The scope of two dash sub-heading shall not extend beyond the scope of the one
dash sub-heading to which it belongs. Similarly, the scope of a one dash sub-heading
•
shall not extend beyond the scope to the heading to which it belongs.

45
6.3.5 Residuary items (others)

As regards residuary classification, there are two possibilities, namely: -

(a) Residuary classification under a heading .

•
(b) Residuary classification under a sub-classification in a heading.

The first would be numbers as in the case of 2502.90. This would cover the
goods falling under heading 25.02 and not included in sub-heading Nos.2502.10 to
2502.50. The second would be given a number as in the case of 4008.19. This would
cover goods specified in sub-classification "-Of cellular rubber." and not included in sub-
heading No.4008.11.

6.4 Interpretative rules·

The Interpretative rules are given in the Central Excise Tariff Act, 1985 and are
an integral part of the Tariff and have full legal backing. These rules- are for
interpretation in the event of various situations, where ambiguities arise.

6.5 Other basis of classification

6.5.1 Scientific, technical or commercial meaning in common parlance

(i) When the classification of goods is not possible in terms of parameters laid down
in the Tariff between Section notes, Chapter notes, Headings, sub-headings or the
Interpretative Rules, all of which have statutory force, the classification would depend on
the general meaning of the goods in commercial parlance and understood by persons in
the trade who deal with the goods. However, once statutory contents in tariff entries are
clear, the commercial nomenclature and understanding would not be applicable.

(ii) In case the product is neither defined in the Central Excise Tariff Act nor in the
Central Excise Act then it should be classified according to its popular meaning or the
meaning attached to it by those dealing with it.

(iii) When the tariff heading or sub-heading read with reference to the Chapter notes,
Section notes and Interpretative Rules, are crystal clear and specific leaving no room for
ambiguity or doubts, the theory of trade practice of popular sense, or any other aid to
interpretation, is irrelevant. .

(iv) Scientific, technical or dictionary meaning have only limited applicability for the
purpose of classification. In case the trade meaning of commodity warrants different
classification than the scientific or technical meaning of that commodity, then generally
the trade meaning should be preferred unless contrary intention is clearly expressed by
the legislature. The scientific or technical meaning would be relevant where the goods .
are traded in the market as pure scientific and technical goods for example basic
chemicals, basic formulations, basic scientific components like diodes, transistors,
PCBs etc.

J These rules are explained in detail in chapter 7.

46
 Therefore, scientific or technical meaning of a product would be relevant for the
purpose of classification in the following cases: -

(a) Where the intention of the legislature is clearly expressed in the statute or the by-
laws that the scientific or technical meaning is to be taken.

(b) Where the normal trade in that commodity is conducted on the basis of the
scientific and technical meaning of that commodity.

(v) Basis of a particular product being understood in 'common parlance' or

'commercial sense' or in "trade circle" can be decided on the basis of tangible evidence
like: -

(a) Description on Commercial invoices (manufacturer's invoices can sometimes be

misleading)

(b) Product catalogue

(c) Affidavit or statement of persons engaged in trade.

(d) Opinion of expert persons.

(e) Opinion expressed in Standard books.

6.5.2 Clarifications

Clarifications are issued by the Government under Section 37B of the Central
Excise Act, 1944 classifying a particular excisable goods under a specific heading or
sub-heading. As per the provisions of the Act these clarifications are both legally and
administratively binding.

6.5.3 Function or use

The function or use of a particular product is normally not relevant for the
purposes of classification unless that tariff entries specify the goods with reference to
their function

6.5.4 Expert's opinion

(i) In case of a dispute on classification an expert opinion can be taken.

(ii) Various types of expert opinions which can be particularly relevant are: -

a) Opinions/Specifications of Bureau of Indian Standards

b) Opinion of Drug Controller /'
c) Opinion/Certificate of Textile Commissioners
d) Opinion of experts attached to various ministries
e) Affidavits by Export Promotion Councils
f) Public notices issued by licensing authorities

The credibility of an expert opinion will depend upon the credibility of the source
in the trade of that product, how far the source normally keeps abreast of the latest

47
developments and all relevant information like common parlance and trade
understanding on the product, for example Bureau of Indian Standards enjoys such
credibility.

The classification cannot exclusively be determined on the basis of expert

opinion, but is to be determined in totality of all the facts.

(iii) Expert's opinion cannot be binding but has significant persuasive value.

6.6 Classification of parts

The area of classification of parts is more often prone to manipulation and mis-
classification. , Most of the disputes arise in respect of parts covered by Chapters 82 to
96. As an aid to comprehension and understanding of the classification of parts, the parts
may be divided into following categories for purposes of classification: -

6.6.1 Parts which in themselves constitute an article covered by a heading

These are in all cases classified in their own appropriate heading even if
specifically designed to work as "part" of specific machine. For example: -

(i) Pumps and compressors (headings 84.13 and 84.14).

(ii) Filtering machinery and apparatus of heading 84.21.

(iii) .. Lifting and handling machinery (heading 84.25, 84.26 or 84.28).

(iv) Taps, cocks, valves, etc. (heading 84.81).

(v) Ball or roller bearings, and polished steel balls of a tolerance not exceeding 1 per
cent or 0.05mm, whichever is less (heading 84.82).

(vi) Transmission shafts, cranks, bearing housing, plain shaft bearings, gears and
gearing (including friction gears and gear-boxes and other speed changers),
flywheels, pulleys and pulley blocks, 'clutches and shaft couplings (heading
84.83).

(vii) Gaskets and similar joints of heading 84.84.

(viii) Electric motors of heading 85.0l.

(ix) Electric transformers and other machines and apparatus (heading 85.04).

(x) Electric heating resistors (heading 85.16).

(xi) Printed circuits (heading 85.41).

(xii) Diodes, transistors, etc. (heading 85.41).

(xiii) Other parts which are recognisable as 'such, but are not suitable for use solely or
principally with a particular machine or class of machine (i.e. which may be
common to a number of machines falling in different headings), are classified in

48
 heading 84.85 (if not electrical) or in heading 85.48 (if electrical), unless they are
excluded by the provisions set out above.

6.6.2 Parts of general use

•
On perusal of chapter note or section note in respect of Chapter 82 to 96, it would
seen that "parts of general use" are excluded from these chapters. "Parts of general
e" have been defined in Section note 2 of Section XV. "Parts of general use" are not
o be regarded as "parts" of individual items falling under these chapters and in all cases
uch "parts of general use" [Link] in Section XV (Base metals and articles of base
metal) only .

.6.3 Parts or Parts and accessories

The classification of "Parts or parts and accessories" of Section XVI (chapter 84

and 85) is explained below: -

Section XVI containing chapter 84 and 85, covers machinery and mechanical
appliances; electrical equipment, electronic items, etc. Parts and accessories of
these articles are also covered by these Chapters.

11 The important aspect is to make note of certain exclusions which are described in
Section note 1 of this Section (such as transmission or conveyor belts of plastics.
vulcanised rubber, spools, bobbins, transmission or conveyor belts of textile
materials, inter-changeable tools of heading No.82.02 or brushes of heading
No.96.03, parts of general use etc).

iii) Note 2 of this Section deals with classification of parts of machinery. In generaL
parts, which are suitable for use solely or principally with particular machines or
with the group of machines or apparatus falling under the san1e heading, are
classified under the same heading as those machines or apparatus subject to
exclusions mentioned earlier in Section notes. In some cases separate headings
are, however, provided for: -

(a) Parts of engines of heading 84.07 or 84.08 (heading 84.09)

(b) Parts of machinery of heading 84.25 to 84.30 (heading 84.31)

(c) Parts and accessories of the textile machines of heading 84.44 to 84.47
(heading 84.48).

(d) Parts and accessories of the machine-tools of the heading 84.56 to 84.65
(heading 84.66).

(e) Parts and accessories of the office machines of heading 84.69 to 84.72
(heading 84.73).

(f) Parts of the machines of headings 85.01 or 85.02 (heading 85.03).

(g) Parts and accessories of apparatus of headings 85.19 to 85.21 (heading

85.22).

49
 (h) Parts of apparatus of headings 85.25 to 85.28 (heading 85.29).

(i) Parts of apparatus of heading 85.35, 85.36 or 85.37 (heading 85.38)

(iv) Parts not covered by any of the three categories above.

,
These are to be classified in the residuary heading.

6.7 Classification of goods assembled at site

The issue of classificafion of goods assembled at site has been a subject matter of
litigation since long. . .

6.7.1 Apex Court Judgments

i) Quality Steel Tubes Pvt. Limited v. CCE [1995(75) E.L.T. 17 rs.c.n

ii) Mittal Engineering Works Pvt. Limited v. CCE, Meerut [1996(88) E.L.T. 622
rs.c.n
iii) Sirpur Paper Mills Limited v..CCE, Hyderabad [1998(97) E.L.T. 3 (S.c.)]

i) Silica Metallurgical Limited v. CCE, Cochin [1999(106) E.L.T. 439 (Tribunal)]

as confirmed by the Supreme Court vide their order dated 22.02.1999 [1999(108)
.E.L.T. A58 (S.C.)]

v Duncan Industries Limited v. CCE, Mumbai [2000(88) E.C.R. 19 (S.c.)]

-i) Triveni Engineering and Industries Limited v.: CCE [2000(120) E.L.T. 273
(S.C.)]

vii) CCE, Jaipur v. Man Structurals Limited [2000(130) E.L.T. 401(S.C.)]

'ote: For detailed case law, the text from relevant ELT may be consulted.

.7.2 Solicitor General of India's clarification

The plethora of such judgments appear to have created some confusion with the
assessing officers. The matter has been examined by the Board in consultation with the
olicitor General of India and the matter is clarified as under: -

i) For goods manufactured at site to be dutiable they should have a new identity,
character and use, distinct from the inputs/components that have gone into its
production. Further, such resultant goods should be specified in the Central
Excise Tariff as excisable goods besides being marketable i.e. they can be taken
to the market and sold (even if they are not actually, SOld). The goods should not
be immovable.

ii) Where processing of inputs results in a new product with a distinct commercial
name, identity and use (prior to such product being assimilated in a structure
which would render them as a part of immovable property), excise duty would be
chargeable on such goods immediately upon their change of identity and prior to
their assimilation in the structure or other immovable property.

50
(iii) Where change of identity takes place in the course of construction or erection of a
structure which is an immovable property, then there would be no manufacture of
"goods" involved and no levy of excise duty.

(iv) Integrated plants/machines, as a whole, mayor may not be 'goods'. For example,
plants for transportation of material such as handling plants -are actually a system
or a net-work of machines. The system comes into being upon assembly of its
components. In such a situation there is no manufacture of "goods" as it is only a
case of assembly of manufactured goods into a system. This cannot be compared
to a fabrication where a group of machines themselves may be combined to
constitute a new machine which has its own identity/marketability and is dutiable
(e.g. a paper making machine assembled at site and fixed to the earth only for the
purpose of ensuring vibration free movement).

(v) If item assembled or erected at site and attached by foundation to earth cannot be
dismantled without substantial damage to its components and thus cannot be
reassembled, then the items would not be considered as movable and wilL
therefore, not be excisable goods.

(vi) If any goods installed at site (example paper making machine) are capable of
being sold or shifted as such after removal from the base and without dismantling
into its components/parts, the goods would be considered to be moveable and
thus excisable. The mere fact that the goods, though being capable of being sold
or shifted without dismantling, are actually dismantled into their
components/parts for ease of transportation etc., they will not cease to be dutiable
merely because they are transported in dismantled condition. Rule 2(a) of the
Rules for the Interpretation of Central Excise Tariff will be attracted as the
guiding factor is capability of being marketed in the original form and not
whether it is actually dismantled or not, into its components. Each case will,
therefore, have to be decided keeping in view the facts and circumstance .
particularly whether it is practically possible (considering the size and nature of
the goods, the existence of appropriate transport by air/water/land for such size.
capability of goods to move on self propulsion-ships etc. to remove and sell the
goods as they are, without dismantling into their components). If the goods are
incapable of being sold, shifted and marketed without first being dismantled into
component parts, the goods would be considered as immovable and, therefore.
not excisable to duty.

(vii) When the final product is considered as immovable and hence not excisable
goods, the same product in CKD or unassembled form will also not be dutiable as
a whole by applying Rule 2(a) of the Rules for the Interpretation of the Central
Excise Tariff. However, components, inputs and parts which are specified
excisable products will remain dutiable as such identifiable goods at the time of
their clearance.
~
(viii) The intention of the party is also a factor to be taken into consideration to
ascertain whether the embedment of a machinery in the earth was to be temporary
or permanent. This, in case of doubt, may help determine whether the goods are
movable or immovable.

51
6.7.3 Board's clarification

Keeping the above factors in mind the position has been clarified further by the
Board.

i) Turn key projects like steel plants, cement plants, power plants etc.:
involving supply of large number of components, machinery, equipments, pipes
and tubes etc. for their assembly/installation/erection/integration/inter-
connectivity on foundation/civil structure etc. at site, will not be considered as
excisable goods for imposition of central excise duty - the components, however,
should be dutiable in the normal course.

ii) Huge tanks made of metal for storage of petroleum products: in oil refineries
or installations. These tanks, though not embedded in the earth, are erected at
site, stage by stage, and after completion they cannot be physically moved. On
sale/disposal they have necessarily to be dismantled and sold as metal
sheets/scrap. It is not possible to assemble the tank all over again. Such tanks
are, therefore, not movable and cannot be considered as excisable good
[Reference para 15 of Triveni judgement supra and the case of CCE Chandigarh
v. Bhawanpura Sugar Mills reported in 2001 (134) E.L.T.673 (Tri.-Del.) =
2001(47) RLT 409 )CEGAT-Del)].

iii) Refrigeration/Air conditioning plants: These are basically system comprising

of compressors, ducting, pipings, insulators and sometimes cooling towers etc.
They are in the nature of systems and are not machines as a whole. They come
into existence only by assembly and connection of various components and part .
Though each component is dutiable, the refrigeration/air conditioning system a a
whole cannot be considered to be excisable goods. Air conditioning unit .
however, would continue to remain dutiable as per the Central Excise Tariff.

iv) Lifts and escalators (a) Though lifts and escalators are specifically mentioned in
sub-heading 8428.10, those which are installed in buildings and permanently
fitted into the civil structure, cannot be considered to be excisable goods. uch
lifts and escalators have also been held to be non-excisable by the Government of
India in the case of Otis Elevators India Co. Limited reported in 1981 (8) E.L. T.
720 (Gal). Also refer CCE v. Kone Elevators India Limited reported in 2001
(138) E.L.T. 635/Tri.-Chen)=200I (45)RLT(CEGAT-Chen). ili.} There may,
however, be instances of fabrication of complete lifts and escalators which are
movable in nature as a whole and can be temporarily installed at construction
sites or exhibitions for carrying men or material. Such cases alone would be
liable to duty under sub-heading 8428.10 of the Central Excise Tariff.

Authority Board's order under Section 37B vide No. 58/1/2002 CX dated 15 January
2002 .<

•
52
 .8 Important case laws on classification

1. Decision Case Law

~o.
Classification is to be based on ~ Collector of Central Excise Vs.
statutory definition, if any, and in Fusebase Eltoto Ltd.
the absence, thereof on trade or 1993(67)ET.30 (SC)
common parlance
~ Metagraphs Pvt. Ltd. Vs. Collector
1996(88) ELT.630(SC)
~ United Copier (India) Pvt. Ltd. Vs.
Commissioner of Sales Tax
1997(94)ELT.28(SC)
Once goods satisfy the basic ~ Paharpur Cooling Towers (P) Ltd. Vs.
characteristic then its shape etc. Collector of Central Excise
would be immaterial 1995(77)EL T.18(SC)
If wording of the heading/sub- ~ Hindustan Packaging Co. Ltd. Vs.
heading read with Section notes, if Collector of Central Excise
any, is not clear enough to conclude 1995(75)EL T.313([Link])
the issue, resort has to be made to
the Rules for interpretation of the
schedule which have then to be
I applied sequentially
I

Classification of goods depends on >- BPL Pharmaceuticals Ltd. Vs.

true nature of the product Collector
I 1995(77)EL T.485(SC)
Functions and end use of the article ~ Indian Tool Manufacturers Vs. Asstt.
are also relevant for determining Collector
classification 1994(74 )EL T.12(SC)
~ Collector Vs. Kumudan Publication
(P) Ltd.
1997(96)EL T.226(SC)
Circulars issued by the Central >- Ranadey Micronutrients Vs. Collector
Board of Excise and Customs 1996(87)EL T.19(SC)
irrespective of the fact whether they v-,
r Paper Products Ltd. Vs. Commissioner
cite Section 37B or not, are binding
1999(112)ELT.765(SC)
on the Departmental authorities
>- Collector Vs. Diren Chemical Indus.
Ltd.
2002(1)9)ELT.3(SC) (Constitution
Bench)
I It is not open to the authorities to ~ Steel Authority oflndia Vs. Collector
take one stand in one State and 2000(115)EL T.42(SC)
another stand in another State and
Trade notice issued by one
Commissionerate must bind all
Commissionerates till it IS

53
 withdrawn or amended
8. The assessee retains the right to >- Orient Paper Mills Ltd. Vs. Union of
challenge the decision contained in India
a departmental circular or trade 1978(2)ELT-J-345(SC)
notice, which is averse to them. In
that case, quasi-judicial authorities
should treat the said ruling as an
expression of opinion, not as a
direction, and should apply their
own mind to the Issue under
adjudication
9. Glucose (liquid) and Malto >- Collector of Central Excise [Link]
dextrose having 38.8 per cent and Starch & Chemicals Ltd.
28.5 per cent of reduced Sugar 1994(72)EL T.753(T)
(Anhydrous dextrose) and
);- Maize Products V s. Commissioner of
conforming to ISI Standard
Central Excise
specifications 873-1974 for liquid
1995(75)EL T.329(T)
Glucose are classifiable under sub-
heading 1702.29
10. Amrutanjan Pain Balm Ayurvedic );- Amruntanjan Ltd. Vs. Collector
Having Menthol LP., Camphor LP., 1995(77)EL T.500(SC)
Turpentine LP. and Methyl
Salicylate LP. as main ingredients
IS classifiable under sub-heading
3003.30
1. Dant Manjan La1 (Tooth Powder) is );- Shree Baidyanath Ayurved Bhawan
not a medicine (Ayurvedic). Ltd. Vs. Collector
Medicine is ordinarily prescribed 1996(83)EL T.492(SC)
by a medical practitioner and it is
used for limited time and not every
day unless it is so prescribed to deal
with a special disease like diabetes
Dual Pack consisting of );- Advance Paints (P) Ltd. Vs. Collector
Aluminimum paste and varnish of Central Excise
aluminium medium, each 2000( 125)EL T.812(T)
separately packed but both sold ).-
Goodlass Nerolac Paints Ltd. Vs.
together are classifiable under
Commissioner of Central Excise
heading/sub-heading 32.08/3208.90
1992(60)EL T.392(T)
Sikkakai Powder IS classifiable );- Superintendent of Central Excise Vs. K
under sub-heading 3305.90 Soap Po,,:~rManufacturers Asson.
1999(111 )tL T.27 (Karnataka)
Skin preparation 'Ad Vitamin );- Sunny Industries (P) Ltd. Vs.
Massage Oil Forte' being a Commissioner of Central Excise
massage oil intended for care of 1995(75)EL T.677(T)
skin IS classifiable under sub-
heading 3304.00

54
15. Rubber solution (Solvent based) , Commissioner of Central Excise Vs.
which is a mixture of solvent and Imperial Water proofing Industries
raw rubber IS classifiable under (India)
sub-heading 3506.00 2000(119)EL T.4 76(T)
~ Commissioner of Central Excise Vs.
Sevak Rubbers
2000(117) EL T.61 O(T)
16. Phenol being disinfectant IS ~ Rosin and Terpentine Factory Vs.
classifiable under sub-heading Commissioner of Central Excise
3801.90 1997(94)ELT.187(T)
17. Thinner used to dilute the paint in ~ Commissioner of Central Excise Vs.
spray painting in vacuum cleaner is Facid Asia Ltd.
classifiable under heading 38.14 1992(60)EL T.157(T)
18. Composite articles of plastic and ~ Commissioner of Central Excise Vs.
fibre glass where plastic dominates Coromondal Prodorite (P) Ltd.
by weight are classifiable under 1995(78) ELT.733(T)
Chapter 39
19. Block Board is classifiable under ~ Commissioner of Central Excise Vs.
heading 44.08. Amendments to Woodcraft Products Ltd.
Chapter Note 5 with effect from 1995(77) EL T.23(SC)
20.03.1990 and 01.03.1992 are only
~ Commissioner Vs. Sudershan Plywood
clarificatory
1997(95) ELT -163(SC)
Phenol bonded Board wherein saw ~ Commissioner of Central Excise Vs.
dust is used with plenolic resin and Gupta Timber (P) Ltd.
the mixture is placed between the 2000(118) ELT.698(T)
non decorative veneers on both
sides IS classifiable under sub-
heading 4406.30 and not under sub-
heading 4408.90
Egg filler flats, egg cartons, tube ~ Commissioner of Central Excise Vs. G.
light packing trays, duck egg trays, Claridge & Co. Ltd.
apple trays, egg containers, tube 1990(46)EL T.576(T)
light containers, duck egg 1991(52)ELT.482(SC)
containers and apple containers are
classifiable under sub-heading
4818.19
Liner-corrugated fibre board is a ~ Swastic paper Industries Ltd. Vs.
corrugated (fluted) sheet of paper or Commissioner of Central Excise
paper board faced on both sides 1996(83)ELT.482(SC)
with flat paper usually kraft, called
the linear
Grey cotton fabrics manufactured ~ Jyoty Overseas Ltd. Vs. Commissioner
in running length not subject to of Central Excise
further processing at the hands of 2001(130) ELT.446([Link].)
the manufacturer and used by

55
 buyers for making tarpaulins, tents,
jeep covers, holdals and bags etc.
are classifiable under heading 52.07
and not under heading 59.11
24. Acrylic yarn containing 70 per cent ~ Birla Jute and Industries Ltd.
of acrylic and 30 per cent viscose is 1992(57)EL T.674(Cal.)

I classifiable
5504.32
under sub-heading

25. Agglomerated marble made out of ~ Commissioner of Central Excise Vs.

crushed marble mixed with cement, Kedia Agglomerated Marbles Ltd.
resin and certain other additives is 1995(77)EL T.71O(T)
not a mineral product hence
classifiable under heading 68.07
26. Intercoms are distinct from ~ Commissioner of Central Excise Vs.
telephone, hence classifiable under Kay Jay Engineers
heading 84.79 1999(111) ELT.420(T)
27. Entries in Harmonised code CCCN ~ Bharat Forge and Press Industries (P)
not relevant for classifying goods Limited Vs. Collector
under the erstwhile Excise Tariff 190(45) ELT.525(SC)
being differently patterned and
worded.
_8. Explanatory notes to HSN are a ~ Collector Vs. Bakelite Hylem Limited
safe guide for ascertaining the true 1997(91) ELT.13(SC)
meaning of any expression used in
the Act in case of doubt.
_9. Classification of goods cannot be ~ Collector Vs. TISCO Limited
abruptly changed without any 1997(94) ELT.A133(SC)
cogent reasons.

56
 CHAPTER-7

RULES FOR THE INTERPRETATION OF THE CENTRAL EXCISE

TARIFF SCHEDULES

7.1 Introduction

The Central Excise Tariff is annexed as a schedule to the Central Excise Tariff
Act, 1985. This tariff is based on Harmonised System of Commodity description and
coding (popularly known as Harmonised System of Nomenclature, i.e. HSN) a
nomenclature developed by the Customs Cooperation Council (Brussels). A salient
feature of the HSN is that it is provided with a set of general rules for the interpretation
of the nomenclature. These rules lay down the principles for classification of the goods
and therefore, help resolve problems arising in the course of identifying the appropriate
heading for a given commodity or article.

The rules for the interpretation of the HSN have been adopted with minor
modifications to suit the national requirements and they now form part of the Central
Excise schedule. In the Harmonised System there are six rules for the interpretation of
the nomenclature whereas in the Central Excise Tariff only five rules have been
incorporated by omitting one of the rules of HSN (rule 5 of HSN) relating to
lassification of packing material.

"'.2 Principles of interpretative rules

The interpretative rules are for interpretation in the event of various situations.
"here ambiguities arise. These rules are explained below: -

.2.1 Rule I - reads as under

"The titles of sections, chapters and sub-chapters are provided for ease of
reference only, for legal purposes, classification shall be determined
according to the terms of the headings and any relative section or chapter
notes and, provided such headings or notes do not otherwise require,
according to the provision herein after contained."

i) The titles of the sections, chapters and sub-chapters of the nomenclature are for
the purpose of reference only. The said titles do not have any legal bearing on the
classification.

ii) The classification of the articles/goods should be determined: -

(a) according to the description given in the headings read with the relative
section or chapter notes;

(b) as otherwise required by the headings or notes; and

(c) as per the provision of rules 2,3,4 and 5 of the Interpretative Rules.

57
(iii) The classification according to the terms of the headings read with relevant
section notes or chapter notes needs no explanation. In the HSN a lot of goods have
been classified with reference to the terms of the headings and the relative section notes
or chapter notes. In such cases classification can be done without recourse to invoking
the interpretative, rules.

(iv) The expression "provided such headings or notes do not otherwise require" needs
special mention. This expression makes it quite clear that the terms of the headings and
the relative section or chapter notes, if any, are of paramount importance. In other
words, the terms of the headings and the relative section or chapter notes are the first
consideration in determining the classification. If the classification can be done from the
heading, section or chapter notes, the rules of interpretation should not be resorted to. A
reading of a particular heading may indicate the scope of the heading to include certain
goods. However, the section notes or the chapter notes may restrict the scope of the
headings. In such cases the section notes, chapter notes provide that heading relates only
to particular goods. Consequently the scope of such heading cannot be extended to
include goods which otherwise might fall under such headings. For example: -

Heading 02.01 reads as "meat of bovine animals fresh or chilled." Prima facie
this heading includes meat of bovine animals, whether fresh or chilled. There is no other
qualification or dis-qualification. Going by the terms in the heading all sorts of meat of
bovine animals whether fresh or chilled has to be classified under this heading.
However, this heading will not cover such products if they are unfit or unsuitable for
human consumption by virtue of Chapter note 1(a) of chapter 2. Thus, eventhough the
heading requires meat of bovine animals to be classified under 02.01, the chapter note
requires it to be otherwise if the meat is not fit or not suitable for human consumption .

.2.2 Rule 2 reads as under: -

a) Any reference in a heading to an article shall be taken to include a reference

to that article incomplete or unfinished, provided that, as presented, the incomplete
or unfinished article has the essential character of the complete or finished article.
It shall also be taken to include a reference to that article complete or finished (or
failing to be classified as complete or finished by virtue of this rule), presented
unassembled or disassembled.

) Any reference in a heading to a material or substance shall be taken to

include a reference to mixtures or combinations of that material or substance with
other materials or substances. Any reference to goods of a given material or
ubstancc shall be taken to include a reference to goods consisting wholly or partly
of such material or substance. The classification of goods consisting of more than
one material or substance shall be according to the principles of rule 3.

.2.2(a) - Classification of incomplete or unfinished articles Rule 2(a)

i) According to the first part of rule 2(a) the scope of any heading which refers to a
articular article is extended to cover the complete article as well as that article in. an
incomplete or unfinished form. However, the incomplete or unfinished article should
• ave acquired the essential character of the complete or finished article.

58
(ii) By virtue of rule 2(a) blanks of an article are also classified in a heading which
refer to the article provided that the blank is not specified in a particular heading.

Blank means an article which is not ready for direct use but having the
approximate shape or outline of the finished article or part. The blank can only be used,
for completion into the finished article or part. However, in exceptional cases they can
be used otherwise also.

(iii) Semi manufactures may not have yet acquired the essential shape of the finished
articles and they are not regarded as blanks. Examples are bars, discs, rods, tubes. They
are not regarded as blanks.

(iv) Sections I to VI of the HSN cover things like animals, vegetables and products
thereof, foods beverages, mineral products and products of the chemical or allied
industries and, therefore, rule 2 (a) in so far as it relates to incomplete or unfinished
articles is not applicable to goods covered in these sections of the nomenclature.

For example chapter 62 covers articles of apparel and clothing accessories, even
if unfinished or incomplete, if they have the essential character of the articles concerned.

7.2.2(b) - Classification of articles presented un-assembled or dis-assembled - Rule

2(a)

(i) The complete or finished articles can be presented unassembled or disassembled.

In such cases according to rule 2(a) the unassembled or disassembled goods are to be
classified in the same heading as the assembled article. Generally the goods are
presented in unassembled or dis-assembled condition for convenience of packing
handling or transport.

(ii) Even incomplete or unfinished articles (provided they have the essential character
of the complete or finished articles) when in unassembled or dis-assembled condition.
have to be classified as complete or finished article by virtue of this rule.

(iii) According to the HSN explanatory note, "articles presented unassembled or dis-
assembled" means articles, the components of which are to be assembled by means of
simple fixing devices (screws, nuts, bolts etc.).

They could also be assembled by means of riveting or welding. In other words

only simple assembling operations would be involved in assembling the unassembled or
disassembled articles to get the article.

iv) Excess components of an article or spares have to be classified separately and not
as an article in which the component or spare part can be used.

v) Considering the scope of this rule, it is generally ·n6t relevant while deciding the
lassification of goods covered in sections I to VI of the nomenclature. Illustrations in
this regard are given below: -

(a) Articles of wood (Parts) presented unassembled or disassembled are

classified with the corresponding complete article, provided the parts are
presented together.

59
 (b) Similarly, accessories or part made of glass, marble, metal or other
material presented with wooden articles to which they belong, are classified with
such article whetHer fitted thereto or not. In other words, this rule is applicable in
respect of goods which are in complete knocked down (CKD) or semi knocked
down ,(SKD) condition.

7.2.2(c) - Classification of mixtures and combinations of materials or substances -

Rule 2(b)

(i) Rule 2(b) is also applicable in respect of mixtures and combinations of materials
or substances.

(ii) This rule is also applicable In respect of goods consisting of two or more
materials or substances.

(iii) This rule is relevant in respect of headings in which there is a reference to a

material or substance (heading 45.01 - cork) as well as headings in which there is a
reference to goods of a given material or substance (heading 45.01 - articles of cork).

The case of classification of a layer of horse hair on a support of textile fabric.

paper etc, or put up between sheets of textile fabric, paper. etc. by stapling or simple
sewing squarely falls under this principle for classification purpose under heading 05.01
- horse hair whether or not put up as a layer with or without supporting material. The
other example of an article which is described in the heading with reference to the gi en
material is articles of cork as appearing in heading 45.01.

(iv) Mixtures which may be preparations described as such in section or chapter notes
or in a heading description have to be classified invoking the provisions of rule 1 of the
Interpretative rules.

7.2.3 Rule 3 reads as under: -

When by application of rule 2(b) or for any other reason, goods are, prima
facie, classifiable under two or more headings, classification shall be effected a
follows: -

(a) The heading which provides the most specific description shail be preferred
to headings providing a more general description. However, when two or more
headings each refer to parts only of the materials or substances contained in mixed
or composite goods or to part only of the items in a set, those headings are to be
regarded as equally specific in relation to those goods, even if one of them gives a
more complete or precise description of the goods.

(b) Mixtures, composite goods consisting of different materials or made up of

different components, and goods put up in sets, which cannot be classified by
reference to rule 3(a), shall be classified as if they consisted of the material or
component which gives them their essential character, in so far as this criterion is
applicable.

60
(c) When goods cannot be classified by reference to rule 3(a) or 3(b), they shall
be classified under the heading which occurs last in numerical order among those
which equally merit consideration.

(i) This rule is applicable if the goods are prima facie classifiable under two or more
headings either as per rule 2(b) or for any other reason.

(ii) The underlying principles in sub rule 3(a), sub rule 3(b) and sub rule 3(c) are as
under: -

(a) In sub rule 3(a) the specific description should be preferred to a more
general description.

(b) In sub rule 3(b), the classification should be with reference to the material
or component which gives the goods their essential character.

(c) In sub rule 3(c), the heading which occurs last in numerical order is
preferred.

(iii) Rule 3 is applicable only if the terms of headings or section or chapter notes do
not require the classification to be done otherwise. For instance in chapter 97, as
per note 4(b) the goods covered by the description in one of the headings 97.01 to
97.05 as well as by the description in the heading 97.06 should be classified in
one of the former heading (97.01 to 97.05)). Thus, such goods are to be
classified according to note 4(b}, in chapter 97 and not according to rule 3(c) (i.e.
the heading which occurs last in the numerical order).

7.2.3(a) - Rule 3(a)

(i) The heading providing the most specific description of the goods is preferred to a
heading which provides a more general description.

(ii) A description by name is more specific than a description by class.

Example: Under heading 85.10 shavers and hair clippers with self contained
electric motor are described by name as such. Hence, classification under the heading
85.10 is preferred to the general heading 85.08 for electro-mechanical tools for working
in the hand, or under the heading 85.09 as electro-mechanical domestic appliances with
self contained electric motor.

(iii) The goods are classified under aheading with a description which more clearly
identifies them. In other words classification shall be made under heading in which the
description is more specific than one where identification is less complete. Examples in
this regard are: -

(a) The tufted textile carpets used in motor cars are not to be classified as accessories
of motor cars in heading 87.08. The heading 57.03 covers carpets and is more specific
for the tufted carpets used in motor cars.

(b) Similarly unframed safety glass toughened or laminated, which has been given a
special shape and is identifiable for use in aeroplanes remains safety glass. Therefore,

61
 they are classified under heading 70.07 where it is specifically described as safety glass
, and not in the heading 88.03 as parts of goods of heading 88.01 or 88.02.

(iv) Rule 3(a) would not be applicable and rule 3(b) or rule 3(c) would be relevant for
determining classification under the following circumstances.

(a) When two or more headings each refer to part only of the materials or substances
contained in mixed or composite goods.

(b) When two or more headings each refer to part only of the items in a set, put up
for retail sale.

(c) When each of these headings are to be regarded as equally specific in relation to
the goods, even if one of them gives a more complete or precise description than the
others.

7.2.3(b) - Rule 3(b)

(i) This rule is applicable only in respect of: -

~ Mixtures,

~ Composite goods consisting of different materials,

~ Composite goods consisting of different components,

~ Goods put up in sets for retail sale,

(ii) This rule is applied only if rule 3(a) fails,

(iii) In all the above cases the goods are classified as if they consisted of the material
or component which gives them their essential character.

(iv) 'The essential character may vary between different kinds of goods. For example
the essential character may be determined by the nature of the material or component, its
bulk, quantity, weight or value or by the role of a constituent material in relation to the
use of the goods.

(v) Composite goods mean not only those in which the components are attached to
each other to form practically an in-separable whole but also it would mean those goods
in which the components can be separated. However, these components should be such
that they are adapted one to the other and are mutually complementary so that they
together form a whole and they are not normally offered for sale in separate parts. An
example in this regard is ash trays consisting of a stand incorporating a removable ash
bowl.

(vi) The components of composite goods are generally put up in a common packing.

(vii) In the HSN the expression "goods put up in sets for retail sale" has been assigned
the following meaning: -

62
 (a) Consisting of at least two different articles which are prima facie
classifiable in different headings. Thus, six table spoons cannot be regarded as a
set for the purpose of this rule.

(b) Consisting of products or articles put up together to meet a particular need

or carry out a specific activity. (example components of certain artificial
adhesives are sold in separate pack but together).

(c) Put up in a manner suitable for sale directly to users without repacking.
Examples of sets which can be classified by reference to rule 3(b) are given
below: -

Set of drawing kit comprising a ruler (heading 90.17), a disc calculator (heading
90.17), a drawing compass (heading 90.17), a pencil (96.09) and a pencil sharpener
(heading 82.14)) all put up in a case of plastic sheeting (heading 42.02). The whole
drawing kit set is classifiable by virtue of rule 3(b) in heading 90.17 of the Tariff.

7.2.3(c) - Rule 3(c)

If the goods can not be classified by invoking rule 3(a) or rule 3(b) they are
classified in the heading which occurs last in the numerical order among those which
equally merit consideration.

7.2.4 - Rule 4 reads as under: -

Goods which cannot be' classified under the above rules shall be classified
under the heading appropriate to the goods to which they are most akin.

The important features of this rule for classification are as under: -

(i) This rule is invoked when the classification is not possible by reference to rule 1
to 3.

(ii) Since under this rule goods are classified under the heading appropriate to the
goods to which the goods to be classified are most akin, this rule is known as the "most
akin rule".

(iii) It is necessary to compare the goods in question with the similar goods in order to
determine whether the goods in question are most akin to the similar goods or not. The
goods are classified in the same heading as the similar goods to which they are most
akin.

(iv) Whether the goods in question are most akin to similar goods or not depends on
factors like description, character, purpose etc.

7.2.5 - Rule 5 (rule 6 of HSN) reads as under: -

For legal purposes, the classification of goods in the subheadings of a

beading shall be determined according to the terms of those subheadings and any
related subheading notes and, mutatis mutandis, to the above rules, on the
understanding that only subheadings at the same level are comparable. For the

63
purposes of the rule, the relative section and chapter notes also apply, unless the
context otherwise requires.

(i) In this rule "sub headings at the same level" means

(a) one-dash heading (level 1)

(b) two-dash heading (level 2)

(ii) While considering the classification the relative merits should be considered
either at the one dash sub headings level within a given heading or at the two-
dash sub headings level within that heading. To put it in short: -

(a) First determine the heading;

(b) Then determine the one-dash sub-heading within that heading; and

(c) Then proceed to decide the classification at the two dash sub-heading
level within the one dash sub-heading level already determined.

(iii) The relevant section notes or chapter notes are also to be considered if the context
so requires.

(iv) The scope of a one-dash sub-heading does not extend beyond that of the heading
to which the one-dash sub-heading belongs.

(v) The scope of a two-dash sub-heading does not extend beyond that of the one-dash
sub-heading to which the two-dash sub-heading belongs.

64
 CHAPTER-8

VALUATION OF EXCISABLE GOODS FOR THE PURPOSE OF EXCISE

DUTY

8.1 Introduction

Section 4 of the Central Excise Act, 1944 lays down basis of valuation of
excisable goods. Section 4 was amended with effect from 1 October 1975. Prior to the
amendment the value of excisable goods was deemed to be "the whole sale cash price for
which an article of like kind and quality was sold or was capable of being sold at the
time of removal for delivery at the place of manufacture or production. After the
amendment the value was deemed to be "the normal price at which the excisable goods
were ordinarily sold by the assessee to a buyer in the course of wholesale trade or
delivery at the time and place of removal". According to these provisions valuation of
identical goods sold by two different assessees at two different places or to two different
buyers need not be the same. The valuation of goods consumed captively and in other
circumstances was governed by Central Excise (Valuation) Rules, 1975.

ction 4 has again been replaced by new Section 4 with effect from 1 July 2000
bringing out the conce t of "transaction value" or levy of duty. Therefore, eac remoal
shall be a ifferent transaction and duty shall be charged on the value of each transaction.

Where, however, the Central Government has fixed tariff values for the good
under Section 3(2) of the Act, the assessee has to pay duty on basis of tariff value fixed
by the Government. Similarly with a view to minimise cases of disputes in valuation a
new-Section 4A has been inserted with the object of enabling the Government to charge
excise duty on certain commodities with reference to maximum retail price, with such
abatement as may be notified by the Government. When a commodity is notified under
Section 4A, resort to Section 4 cannot be taken for its valuation.

-------
8.2 Duty chargeable on 'transaction value!/'

{Duty under section 4 (transaction value) can only be levied: -

(a) if a product is not notified

,...r-
under Section 4A;

(b) there is no tariff value fixed for it under Section 3(2); and

(c) the product is not chargeable to specific rate of duty.

rTransaction Value' means the price .actually paid or payable for the good,
when sold, and includes in addition to the amount charged as price, any amount
that the buyer i liable to pay to, or on behalf of, the assessee, by reason of, or in
connection with the sale, whether payable at the time of sale or at any other time,
including, but not limited to any amount charged for, or to make provisions for,
advertising or publicity, marketing and selling organisation expenses, storage,
outward handling, servicing, warranty, commission or any other matter; but doe
not include the amount of duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods.
 For applicability of transaction value in a given case, for assessment purposes,
the following requirements should be satisfied: - '

(a) the goods are sold by [Link] for delivery at the time and place of removal.
The terIY ""'pI-aceof removal" has been defined basically to mean a factory or a
warehouse;

(b) the assessee and the buyer of the goods are not related; and

Cc) the price is the sole consideration for the sale.

If anyone of the above requirements is not satisfied, then the transaction value
shall not be the assessable value and value in such case has to be arrived at under the
valuation rules.

The new Section 4 seeks to accept different transaction values which may be
charged by the assessee to different customers, for assessment purposes so long as these
are based upon purely commercial consideration where buyer and the seller have no
relationship and price is the sole consideration for sale.

8.3 Duty with reference to place of removal

The term "place of removal" has been defined in the same manner as was defined
in the erstwhile Section 4 prior to its amendment in 1996. If, therefore, the transaction
value is with reference to delivery at the time and place of removal, such transaction
value will be the assessable value. .

8.4 Ingredients of transaction value

"Transaction Value" includes all elements which enrich the value of the good
before they are marketed as held by Hon'ble Supreme Court to be includible in 'value"
under the erstwhile Section 4 and would continue to form part of value under the new
Section 4 definition. Where the assessee charges an amount as price for his goods, the
amount so charged and paid or payable for the goods will form part of the assessable
value. If, however, in addition to the amount charged as price from the buyer, the
assessee also recovers any other amount by reason of sale or in connection with sale.
then such amount shall also form part of the transaction value. Thus, if assessee splits up
his pricing system and charges a price for the goods and separately charges for
packaging, the packaging charges will also form part of assessable value as it is a charge
in connection with production and sale of the goods recovered from the buyer.

8.4.1 Elements that form the transaction value

Transaction value includes other payments, which the assessee may receive by
reason of or in connection with the sale. Following charges recovered or shown as
recoverable from customer shall form part of the transaction value: -

(i) Warranty charges

If assessee recovers warranty charges for any goods in a particular transaction,

then the warranty charges shall be included in the transaction value for the goods and
duty will be payable on this part of value recovered from the buyer even if such warranty

66
charges are recovered separately and not considered as "price" of goods charged for in
the invoice issued by the assessee. It is immaterial whether the warranty is optional or
mandatory. Where, however, warranty charges are not recovered, the question of
including warranty charges in transaction value does not arise.

(ii) Advertising or publicity charges

If an assessee recovers advertising charges or publicity charges from his buyers,

either at the time of sale of goods or even subsequently, the assessee cannot claim that
such charges are not includible in the transaction value. The law recognizes such
payment to be part of the transaction value that is assessable value for those particular
transactions. However, advertisement and publicity charges if incurred by the dealer
(buyer) on his own for which there is no reimbursement [Link] assessee will not form
part of the value.

(iii) Packing charges

New Section 4 does not make any specific reference to packing charges. Thi
does not mean that charges relating to packing will not form part of assessable value.
per commercial practice, the price for the goods charged, normally includes the cost of
packing charges. However, at times separate charge may be billed for special packing,
as per customer's requirements. The issue of primary packing or secondary packing are
no longer relevant. Any charges recovered for packing are obviously charges recovered
in relation to the sale of the goods under assessment and will form part of the transaction
value. However, cost of packing which is of durable nature and is supplied by the buyer
to the assessee and is returnable by the assessee to the buyer is not to be included in the
assessable value in cases of supply of specified goods in notification No.313177 CE
dated 8 November 1977, as amended.

(iv) Other charges

Where the assessee includes all his costs incurred in relation to manufacture and
marketing while fixing price payable for the goods and collects an all inclusive price. as
happens in most of the cases where sales are to independent customers on commercial
consideration,' the transaction price will generally be the assessable value. Nevertheles
there could be situations where the amount charged by an assessee does not reflect the
true intrinsic value of goods marketed and total value is split up into various element
like special packing charges, warranty charges, service charges etc. Such elements were
includible in the assessable value under erstwhile Section 4 by virtue of various court
pronouncements viz., the Supreme Court's judgment in MRF case. Now the definition
of "transaction value" makes it clear that all the elements of cost which the assessee
incurred till the sale/marketing as aforesaid, continue to be included in the assessable
alue even under new Section 4. Some of the other items that form part of the
transaction value are mentioned below: - ~

a) Designand engineering charges.

) Consultancy charges relating to manufacture.

c) Pre-delivery inspection/Mandatory inspection/Third party inspection charges

67
(d) Material handling charges for loading/unloading of raw material upto the factory
gate and cost of transporting the raw material/inputs to the premises of the job workers.

(e) Royalty charges in franchise agreement. Amortized value of cost of reusable

containers (glass ,bottles, crates etc.) if not included in price charged.

(f) Price revision on escalation.

(g) Training charges to customers if it is connected with the sale of products.

(h) Freight, insurance, handling charges in case goods are delivered at the customers
end (door delivery) and actual charges incurred on this account are not clearly indicated
on invoice issued.

(i) Cost of erection, installation and commissioning charges if the final product
emerges out as a new identifiable product as "goods".

8.4.2 Elements not forming part of the transaction value

(i) Discounts ./'

If in any transaction a discount is allowed on declared price of any goods and

actually passed on to the buyer of goods as per common practice the amount of discount
will not form part of the transaction value. Discount of any type or description given on
any normal price payable for any transaction will, therefore, not form part of the
transaction value for the goods, e.g. quantity discount for goods purchased or cash
discount for the prompt payment etc. will, therefore, not form part of the transaction
value. The differential discounts extended as per commercial considerations on different
transactions to unrelated buyers if extended cannot be objected to and different actual
prices paid or payable for various transaction are to be accepted for working assessable
value. Where, however, the assesse claims that the discount of any description for a
transaction is not really known but would be known only subsequently, the assessment
for such transactions may be made on provisional basis but assessee must disclose the
intention of allowing such discount and make a request for provisional assessment.

(ii) Taxes

Any amount actually paid or actually payable to the Government or the relevant
statutory authority by way of excise, sales tax and other taxes, shall be excluded from the
transaction value. In other words, if any excise duty or other tax is paid at a concessional
rate for a particular transaction, the amount of excise duty or tax actually paid/payable at
the concessional rate shall only be allowed to be deducted from price.

The words "actually payable" in the context of the amount of duty of excise, sales
tax and other taxes would normally come into play only in those situations where the
amount of excise, sales tax or other taxes is not paid at the time of transaction but
paid/payable subsequently, for example, sales tax payable under a deferment scheme.
(iii) Interest for delayed payments

As regards interest for delayed payments, it is the normal practice in industry to

allow the buyers some credit period for which no interest is charged. That is to say, the
assessee allows the buyers some time (normally 30 days), which could be less or even
more depending upon commercial consideration to make the payment for the goods
supplied. Interest is charged by him from the buyer only if the payments are made
beyond this period. As per the existing practice under Section 4 such amount of interest
is not included in value. As such, charges for interest under a financial arrangement
entered between the assessee and the buyer relating to the purchase of excisable goods
shall not be regarded as part of the assessable value provided that: -

(a) the interest charges are clearly distinguished from the price actually paid
or payable for the goods;

(b) the financing arrangement is made in writing; and

(c) where required, assessee demonstrates that such goods are actually sold at
the price declared as paid or payable.

8.5 Deductions not permissible

The following expenses incurred by the assessee are not permissible deductions
from the assessable value: -

(i) Tax paid on raw material

(ii) Commission paid/payable to agent

(iii) Discount for damage in transit

(iv) Discount for expired goods.

8.6 Assessment under Valuation rules

•
In those cases where any of the three requirements mentioned in para 8.2 abo e i
missing, the assessable value shall be determined on the basis of the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Valuation
Rules are notified under Section 4(1)(b) by Notification No.45/2000-CE (NT) dated 30
June 2000 as amended vide notification [Link]/2003 CE (NT) dated 1 March 2003.
Salient features of the new Valuation Rules are mentioned below: -

(i) When place of removal is other than factory/warehouse

If the assessee and the buyer are not related persons and the price is also the sole
consideration for sale but only the delivery of goods is made by the assessee at a place
other than the factory/warehouse, then the assessable value shall be the "transaction
value" without the addition of the cost of transportation from the factory/warehouse upto
the place of delivery. However, exclusion of cost of transportation is allowed only if the
assessee has shown them separately in the invoice and is permissible only for the actual
cost so charged from his buyers. If the assessee has a system of pricing and sale at
uniform price inclusive of equalised freight for delivery at factory gate or elsewhere no

69
deductions for freight element will be permissible (Refer Board's circular
[Link].354/81/2000TRU dated 30 June 2000). Compensation to customers for breakage
or losses in transit cannot be treated as insurance or transportation cost (Collector Vs.
Surya Roshni Limited - 2000 (122) E.L.T 3(S.C.)). From Budget 2003 onwards actual
transport charged' and equalised freight charged for transport of goods from factory gate
to the place of delivery is an admissible deduction. However cost of transportation from
the factory to the place of removal, i.e. upto depot or premises of a consignment agent
where the factory is not the place of removal, shall not be excluded for the purposes of
determining the value of excisable goods.

(ii) Where goods are transferred to depots/consignment agents

If the goods are not sold at the factory gate or at the warehouse but they are
transferred by the assessee to his depots or consignment agents or any other place for
sale, the assessable value in such case for the goods cleared from factory/warehouse shall
be the normal transaction value of such goods at the depot, etc. at or about the same time
on which the goods as being valued are removed from the factory or warehouse. It
means it is the transaction value at which the greatest aggregate quantity of goods from
the depots etc. are sold at or about the time of removal of the goods being sold from the
factory/warehouse. If, however, the identical goods are not sold by the assessee from
depot/consignment agent's place on the date of removal from the factory/warehouse, the
nearest date on which such goods were sold or would be sold shall be taken into account.
In either case if there are series of sales at or about the same time, the normal transaction
value for sale of independent buyers will have to be determined and taken as basis for
valuation of goods at the time of removal from factory/warehouse.

For example, if an assessee transfers a consignment of paper to his depot from

Delhi to Agra on 5 July 2K at transaction value of Rs.l5,000 per tonne to unrelated
buyers, where price is the sole consideration for sale, the consignment cleared from the
factory at Delhi on 5 July 2K shall be assessed to duty on the basis of Rs.l5,000 per
tonne as the assessable value. If assuming that on 5 July 2K there were no sales of that
variety from Agra depot but the sales were effected on 1 July 2K, then the normal
transaction value on 1 July 2K from the Agra depot to unrelated buyers, where price is
the sole consideration would be the basis of assessment.

(iii) Where goods are captively consumed

The assessable value of captively consumed goods will be taken at 115 per cent
(110 per cent from 5 August 2003) of the cost of manufacture of goods even if identical
or comparable goods are manufactured and sold by the same assessee. For example if
the cost of production based upon general principles of costing of a commodity is
Rs.10,000 per unit, the assessable value of the goods shall be Rs.11,500 per unit
(Rs.11,000 per unit from 5 August 2003).

(iv) Where price is not the sole consideration for sale

In the case where price is not the sole consideration for the sale, but the other
requirements of clause (a) of sub-section (1) of Section 4 of the Central Excise Act are
satisfied, the value shall be determined in accordance with the provisions of rule 6 of the
Valuation Rules. This provides for adding, to the transaction value the money value of
any additional consideration flowing directly or indirectly from the buyer to the assessee.

70
Such additional consideration would include the money value of goods and services
provided free or at reduced cost by or on behalf of the buyer to the assessee. An
explanation has been added in the new rule to remove any doubts with respect to its
scope.

From 1 March 2003 where an assessee receives any advance payments from the
buyer against delivery of excisable goods, no notional interest on such advance shall be
added to the values unless the advance received has influenced the fixation of price by
way of charging lesser price or offering a special discount.

(v) Where goods are sold through related persons

Where goods are sold through related persons, the transaction value is not
applicable. However, there is some change in the definition of 'related persons' vis-a-vis
the old definition

(a) Related person

As per Section 4(3)(b) a persons shall be deemed to be "related" if-(i)they are

inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a
relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv
they are so associated that they have interest, directly or indirectly, in the business of
each other.

Explanation. -In this clause- (i) "inter-connected undertakings" shall have the meaning
assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practice
Act, 1969 (64 of 1969); and (ii) "relative" shall have meaning assigned to in clause (41
of section 2 of the Companies Act, 1956

Section 2(41) defines "relative" to mean persons related as per Section 6 and
Schedule I-A which "deems" the following categories to be relatives:: -

(i) member of a HUF; (ii) Husband and wife; and (iii) One is related to other in the
manner indicated in Schedule I-A which lists out 22 categories of relatives shown a
under: -
List of relatives
1. Father" s father 2. Father's mother
3. Mother's father 4. Mother's mother
5. Father 6. Mother
7. .Brother 8. Brother's wife
9. Sister 10. Sister's husband
11. Son 12. Son's wife
13. Daughter 14. Daughter's husband
15. Son's son 16. Son's son's wife
17. Son's daughter 18. Son's daughter's husband
19. Daughter's son 20. Daughter's son's wife
21. Daughter's daughter 22. Daughter's daughter's husband

Note: SOI1,brother, sister, mother will include step-relations, like step-mother, step-brother etc.

71
(b) The inter-connected undertakings

"Inter-connected undertakings" means two or more undertakings which are inter-

connected with each other in any of the following manner, namely: -

(i) if one owns or controls the other,

(ii) where the undertakings are owned by firm, if such firms have one or more
common partners,

(iii) Where the undertakings are owned by bodies corporate, -

(a) if one body corporate manages the other body corporate; or

(b) if one body corporate is a subsidiary of the other body corporate;

or

(c) if the bodies corporate .are under the same management; or

(d) if one body corporate exercises control over the other body
corporate in any other manner.

(iv) Where one undertaking is owned by a body corporate and the other is
owned by a firm, if one or more partners of the firm,-

(a) hold directly or indirectly, not less than fifty per cent of the shares,
whether preference or equity, of the body corporate; or

(b) exercise control, directly or indirectly, whether as director or

otherwise, over the body corporate.

(v) If one undertaking is owned by a body corporate and the other is owned
by firm having bodies corporate as its partners, if such bodies corporate are under
the same management,

(vi) if the undertakings are owned or controlled by the same person or (by the
same group),

(vii) if one is connected with the other either directly or through any number of
undertakings which are inter-connected undertakings with the meaning of one or
more foregoing sub-clauses.

Explanation 1. - For the purpose of this Act, two bodies corporate shall be
deemed to be under the same management: -

(i) if one such body corporate exercises control over the other or both are
under the control of the same group or any of the constituents of the same group;
or

(ii) if the managing director or manager of one such body corporate is the
managing director or manager of the other; or

72
(iii) if one such body corporate holds not less than (one fourth) of the equity
shares in the other or controls the composition of not less than (one fourth) of the
total membership of the Board of directors of the other; or

(iv) if one or more directors of one such body corporate constitute, or at any
time within a period of six months immediately preceding the day when the
question arises as to whether such bodies corporate are under the same
management constituted. (whether independently or together with relatives of
such directors or the employees of the first mentioned body corporate) one-fourth
of the directors of the other; or

(v) if the same individual or individuals belonging to a group, while holding

(whether by themselves or together with their relatives) not less than (one-fourth)
of the equity shares in one such body corporate also hold (whether by themsel es
or together with their relatives) not less than (one-fourth) of the equity shares in
the other; or

(vi) if the (same body corporate or bodies corporate belonging to a group.

holding, whether independently or along with its or their subsidiary or
subsidiaries, not less than one-fourth of the equity shares) on one body corporate.
also hold not less than (one-fourth) of the equity shares in the other; or

(vii) if not less than (one-fourth) of the total voting power in relation to each of
the two bodies corporate is exercised or controlled by the same indi idual
(whether independently or together with his relatives) or the same body corporate
(whether independently or together with its subsidiaries);

(viii) If not less than (one-fourth) of the total voting power (in relation to) each
of the two bodies corporate is exercised or controlled by the same individual
belonging to a group or by the same bodies corporate belonging to a group. or
jointly by such individual or individuals and one or more of such bodie
corporate; or

(ix) if the directors of the one such body corporate are accustomed to act in
accordance with the directions or instructions of one or more the directors of the
other, or if the directors of both the bodies corporate are accustomed to act in
accordance with the directions or instructions of an individual, whether belonging
to a group or not.

Explanation I!. - If a group exercises control over a body corporate, that bod
corporate and every other body corporate, which is a constituent of or controlled
by, the group shall be deemed to be under the same management.

Explanation Ill.- If two or more bodies corporate under the same management
hold, in the aggregate, not less than (one-fourth) equity share in any other body
corporate, such other body corporate shall be deemed to be under the same
management as the first mentioned bodies corporate.

Explanation IV - In determining whether or not two or more bodies corporate are

under the same management, the shares held by (financial institutions) in such
bodies corporate shall not be taken into account.

73
 In view of the above the term inter-connected undertaking covers large categories
of legal entities/undertakings to whom goods are sold by the assessees which may be
held as "related person" under the new definition. It may be noted that under the
erstwhile provisions under Section 4, except for the specifically named categories
namely, holding company, subsidiary company, a relative and a distributor of the
assessee and any sub-distributor of such distributor buyer was held to be related to
selling assessee only if they were so associated that they had interest directly or
indirectly in the business of each other. In contrast no such general condition/restriction
applies for inter-connected undertakings to be "related" under new Section 4. However,
a provision has been made in the new valuation rules that even if the assessee and the
buyer are inter-connected undertakings, the transaction value will be "rejected" only
when they are "related" in the sense of any of clause (ii), (iii) or (iv) of sub-Section
4(3)(b) or the buyer is a holding company or a subsidiarly company of the assessee. In
other words, while dealing with transactions between inter-connected undertakings, if the
relationship as described in clause (ii) [a relative] (iii) [buyer being a relative and a
distributor or a sub-distributor of such distributor] or (iv) [mutuality of interest] does not
exist and the buyer is also not a holding company or a subsidiary company, then for
assessment purposes, they will not be considered related. "Transaction value" could then
form the basis of valuation provided other two conditions, namely, price is for delivery
by the time and place of removal and the price is the sole consideration for sale are
atisfied. If any of the two aforesaid conditions are not satisfied then, quite obviously
value in such cases will be determined under the relevant rule.

(Based 01/ CBEC's circular [Link].354!8112000 TRU dated 30.06.2000 and [Link].6![Link] dated 01.07.2001).

8.7 Important case laws on valuation

I. Case Law Issue involved
• O.
1. Asstt. Commissioner of Central Excise Goods sold through related
Vs. MRF Ltd. person
1987(2).ELT-553
1989(41 yELT-703(SC)
Government of India Vs. MRF Ltd. -do-
1995(77)EL T-433(SC)
Union ofIndia and Others Vs. Bombay Post Manufacturing expenses
Tyre International Ltd. regarding -
1983(14)ELT-1896(SC) Concept of related person
1984(17)ELT -329(SC)
1983(12)EL T-869(SC)
Atic Industries Ltd. Vs. H.H. Dave, Sale at arms' length form the
Asstt. Commissioner of Central Excise basis for assessment
1978(2)EL T-J.444(SC)
A.K. Roy Vs. Voltas Ltd. Goods sold through dealers -
1977 (1)EL T-J.1 77(SC) favoured buyer
Geep Industrial Syndicate Ltd. Vs. -do-
Union of India
1992(61)EL T.J.328(SC)
Kirloskar Brothers Vs. Union ofIndia Excise duty element would not

74
 1992(59)ELT.3(SC) form part of goods captively
consumed
8. Union of India Vs. Cibatul Ltd. Goods produced under tripartite
1985(22)EL T.302(SC) agreement with buyer's
trademark
9. Ujagar Prints Etc. Etc. Vs. Union of Goods produced by job worker
India and others
1989(39)ELT -493(SC) (Constitution
Bench)
10. Collector of Central Excise Vs. Metal Additional consideration forming
Box India Ltd. part of assessable value
1989(3 9)EL T-79(Tribunal)
11. Metal Box India Ltd. Vs. Commissioner - Additional consideration forming
of Central Excise, Madras part of assessable value
1995(75)ELT-449(SC)
12. Sidhosons Vs. Union ofIndia Goods manufactured with
1986(26)EL T-881 (SC) customer's brand name/additional
consideration
13. Daiichi Karkaria Ltd. Vs. Collector of Treatment of Central Excise duty
Central Excise, Pune, element for valuation of goods
1996(81)ELT-676([Link].) consumed captively
14. Collector of Central Excise, Pune Vs. -do-
Daiichi Karkaria Ltd.
1999(112)ELT-353(SC)
15. Eicher Motors Ltd. Vs. Union ofIndia -do-
1999(106)ELT-3(SC)
16. Empire Industries Ltd. Vs. Union of Full intrinsic value of end
India product-includes value of input
1985(20)EL T-179(SC) goods
17. PSI data System Ltd. Vs. Collector of Value of software sold with
Central Excise, computer not includible 111
1997(89)ELT-3(SC) assessable value
18. Union ofIndia Vs. Metal Box Co. of Cost of printing and lacquering of
India Ltd. aluminium tubes includible 111
1996(87)ELT-327(SC) values
19. Mysore Rolling Mills (P) Ltd. Vs. Pre manufacturing handling
Collector of Central Excise charges for raw material incurred
1987(28)ELT-50(SC) by job worker includible in value
Mopeds India Ltd. Vs. Asstt. Sale through related person-
Commissioner of Central Excise Assessable value to be
1986(23)ELT-8(SC) determined on the basis of price
charged by such related person
Collector of Central Excise Vs. India Interest on deposits against use of
Oxygen Ltd. gas cylinder not includible
1989(41 )ELT-61 O(T)
1988(36)ELT-730(SC)

75
 CHAPTER-9

VALUATION OF EXCISABLE GOODS ON THE BASIS OF RETAIL SALE

PRICE (RSP)

9.1 Introduction

\As per Section 4A of the Central Excise Act, 1944 inserted vide clause 80 of the
Finance Bill 1997, the Central Government may by notification in the official Gazette,
specify any goods, in relation to which it is required under the provisions of Standard
Weight and Measurement Act, 1976 or the rules made there under or under any other law
for the time being in force, to declare on the package thereof the retail sale price of such
goods, to which the provisions of sub-section (2) shall apply.l

Where the goods specified under sub-section (1) are excisable goods and are
chargeable to duty of excise with reference to value, then notwithstanding anything
contained in Section 4, such value shall be deemed to be the retail sale price on such
goods less such amount of abatement, if any, from such retail price as the Central
Government may allow by notification in the official Gazette.

The Central Government may, for purpose of allowing any abatement under sub-
ection (2) take into account the amount of duty of excise, sales tax and other taxes,
payable on such goods.

9.2 Coverage and rate of abatement

In pursuance to the aforesaid provisions Government have so far issued the

notifications covering the following items from the dates and the abatements allowed as
mentioned against each: -

. o. Items covered Number of Abatement allowed

heading/sub-heading
covered
From 1July 1997
.-4. Cosmetics Heading 33.03, 50 per cent
Heading 33.04, (40 per cent - 01.03.200_
Heading 33.05, and
Heading 33.07
From 1September 1997
s -7. Paints & varnish Heading 32.08, 40 per cent
Heading 32.09, and
Heading 32.10
Footwear Heading 64.01 50 per cent
(40 per cent - 02.06.98)
-10 Aerated water Sub-heading 2201.20, 50 per cent
Sub-heading 2202.20 (55 per cent - 22.06.2000
(50 per cent - 01.03.2001)
(45 per cent- 01.03.2003

76
 From 1.6 September 1997
11. Colour televisions Heading 85.28 30 per cent
35 per cent - 01.03.2001
From 1October 1997
12. Tooth powder and tooth Sub-heading 3306.10 30 per cent
paste 35 per cent - 01.03.2000
13-14. Detergents Sub-heading 3401.20, 35 per cent
Sub-heading 3402.90
From 2 June 1998
15. Chocolates Sub-heading 1803.00 35 per cent
16-17. Malt products put up In Sub-heading 1901.19, 35 per cent
container Sub-heading 1901.92,
18. Pan Masala Sub-heading 2106.00 50 per cent
19. Glazed tiles Sub-heading 6906.10 50 per cent
45 per cent - 01.03._
Cooking appliances Sub-heading 7321.10 40 per cent
Razors & razor blades Sub-heading 8212.00 40 per cent
22. Primary cells and primary Sub-heading 8506.00 40 per cent
batteries
Electro mechanical Sub-heading 8509.00 40 per cent
domestic appliances with
motor
Shavers, hair clippers and Sub-heading 8510.00 40 per cent
hair removing appliances
with motor
Storage water heaters Sub-heading 8516.00 40 per cent
(Geyzers)
Radio sets including Sub-heading 8527.10 30 per cent
transisters set (Two in ones) 35 per cent - 01.03._000
Electric filaments or Sub-heading 8539.00 40 per cent
discharge bulbs
From 1March 1999
Prepared foods put up In Sub-heading 1904.10 35 per cent
unit containers
Biscuits Sub-heading 1905.11 35 per cent
40 per cent - 01.03.2000
35 per cent - 0 1.03.200~
:0. Waffles & Wafers Sub-heading 1905.39 35 per cent
40 per cent - 01.03.2000
Branded fruits jams, jelly Sub-heading2001.10 30 per cent

77
 etc. 35 per cent - 01.03.2000
Omitted from 01.03.2001
Extracts essences and
32. Sub-heading 2101.10 35 per cent
concentrates
33. Branded sauces, ketchups in Sub-heading 2103.1 0 35 per cent
container 40 per cent - 01.03.2000
(Omitted from 01.03.2001
34. Branded soups and broths in Sub-heading 2104.10 30 per cent
container 35 per cent -01.03.2000
(Omitted from 01.03.2001
35. Ice cream Sub-heading 2105.00 40 per cent
45 per cent - 01.07.1999
36. Sharbat Sub-heading 2108.20. 35 per cent
37. Lubricating mineral oils and Sub-heading 2710.90 40 per cent
lubricating preparations
38-39. Mineral waters Sub-heading 2201.19, 50 per cent
Sub-heading 2202.19
-to. Toilet soaps Sub-heading 3401.19 35 per cent
-t1. Polishes and creams for Sub-heading 3405.00 35 per cent
footwear
-t2. Prepared glues Sub-heading 3506.00 35 per cent
40 per cent-01.07.19 9
-t3. Mosquito coils mats and Sub-heading 3808.10 30 per cent
other mosquito repellants 35 per cent - 01.03. 0
All goods -do- 35 per cent - 01.03. 00'"
Sanitary towels & Sanitary Sub-heading 4818.10 35 per cent
articles etc. of papers +(Omitted from 1.03._000
5. Sanitary towels etc. of Sub-heading 5601.10 35 per cent
cotton +(Omitted from 1.03.20
6. Safety head gears (Helmets) Sub-heading 6501.10 35 per cent
40 per cent - 01.07.1 999
7-48. Pressure cookers Sub heading 7323.10, 30 per cent
Sub-heading 7615.20 35 per cent - 0l.03.2000
30 per cent - 01.03.2003
9. Electric fans Sub-heading 8414.40 35 per cent
40 per cent - 01.03.2000
-0. House hold and laundry Sub-heading 8450.10 40 per cent
type washing machine
Portable electric lamps Sub-heading 8513 .00 35 per cent
Record decks, record Sub-heading 8519.00 40 per cent
players etc.
-..,.J.
Magnetic tape recorders etc. Sub-heading 8520.00 40 per cent

78
54. Other reception apparatus Sub-heading 8527.90 40 per cent
for Radio broadcasting
55. Photographic cameras Sub-heading 9006.00 35 per cent
(other than
cinematographic)
56-57. Wrist watches Sub-heading 9101.90, 30 per cent
Sub-heading 9102.90 35 per cent - 01.03.2000
58. Clock & watch movements Sub-heading 9103.00 40 per cent
45 per cent - 01.03.2000
59. Other clock Sub-heading 9105.00 40 per cent
45 per cent - 01.03.2000
60. Vacuum flasks Sub-heading 9617.00 40 per cent
35 per cent - 19.01.200
From 1March 2000
61. Condensed milk put up In Sub-heading 0401.14 35 per cent
containers for sale
62. Gums whether or not sugar Sub-heading 1704.10 40 per cent
coated
63. Cocoa powder Sub-heading 1802.00 35 per cent
64. Other food preparation Sub-heading 1804.00 35 per cent
containing cocoa
65. Seviyan Sub-heading 1902.19 35 per cent
66. Waffles & wafers coated Sub-heading 1905.31 35 per cent
with chocolate
67. Yeasts in container Sub-heading 2102.10 35 per cent
68. Betel nuts Sub-heading 2107.00 35 per cent
Betel nut powder, supari 35 per cent
Scented supari 30 per cent 01.03.200"
69. Other edible preparations Sub-heading 2108.99 40 per cent
70. Fruit pulp or fruit juices Sub-heading 2202.40 40 per cent
+(Omitted 01.03.2001 du_
being nil).
1. Vinegar Sub-heading 2203.00 40 per cent
2. Synthetic organic product of Sub-heading 3204.30 35 per cent
specific use
...,
J. Lubricating preparation Sub-heading 3403.1 0 35 per cent
4. Other photographic Sub-heading 3702.90 40 per cent
unexposed films
5. Other disinfectants etc. Sub-heading 3808.90 40 per cent
6. Insulated wares Sub-heading 3924.10 40 per cent

79
 45 per cent - 13.09.2001
40 per cent - 19.01.2004
77. Window room air Sub-heading 8415.00 40 per cent
conditioners and split arr (split air conditioners
conditioners upto 3 tonne added from 01.03.2001)
35 per cent - 01.03.200'"
78. Refrigerators, freezers Sub-heading 8418.10 - -40 per cent
79. Dish washing machines Sub-heading 8422.10 35 per cent
80. Other typewriters Sub-heading 8469.90 35 per cent
81. Calculating machines & Sub-heading 8470.00 40 per cent
pocket size calculators
82. Telephone apparatus etc. Sub-heading 8517.00 40 per cent
83. Transmission apparatus for Sub-heading 8525.00 40 per cent
radio telephony - Pager-
cellular or mobile phones
84. Ribbons for typewriters etc. Sub heading 9612.00 35 per cent
From 1March 2001
85. Sugar Syrup Sub-heading 1702.30 40 per cent
86. White cement Sub-heading 2502.21 40 per cent
35 per cent - 01.0"'._
87. Stainers Sub-heading 3213.00 40 per cent
+Omitted - 01.03.2 _
88. Fillers and putties Sub-heading 3214.00 40 per cent
89. Thinners Sub-heading 3814.00 40 per cent
90. Hydraulic brake fluids and Sub-heading 3819.00 40 per cent
other prepared liquids for
hydraulic machines
91. Anti freezing preparations Sub-heading 3820.00 40 per cent
92. Stencil correctors Sub-heading 3824.90 40 per cent
93. Insulated wares Sub-heading 3923.10 40 per cent
45 per cent - 13.09._001
40 per cent - 19.01.200-
94. Carbon papers Sub-heading 4816.00 40 per cent
95. Soft adhesive tapes of Sub heading 3919.00 40 per cent
plastic
96. Cleansing or facial tissue Sub-heading 4818.90 40 per cent
papers etc.
97. Vitrified tiles Sub-heading 6905.10 45 per cent
98. Staples in slips paper clips Sub-heading 8305.00 40 per cent
[Link] metal

80
99. Water filters & water Sub-heading 8421.10 40 per cent
purifiers
100. Stapling machines Sub-heading 8472.00 40 per cent
101. Unrecorded audio cassettes Sub-heading 8523.12 40 per cent
102. Audio cassettes Sub-heading 8523.14 40 per cent
103. Video cassettes Sub-heading 8524.34· 40 per cent
104. Magnetic discs (unrecorded) Sub-heading 8523.20 40 per cent
105. Magnetic discs (recorded) Sub-heading 8524.40 40 per cent
From 16 July 2001
106- Watches Sub-heading 9101.90, 45 per cent
107 Sub-heading 9102.90
108- Clocks Sub-heading 9103.00, 45 per cent
109 Sub-heading 9105.00
From 1March 2002
110 Preparation of sugar - Sub-heading 1702.21 40 per cent
anhydrous dextrose
111 Other preparations of sugar Sub-heading 1702.29 40 per cent
112. Other sugar Confectionery Sub-heading 1704.90 40 per cent
(other than gums) Sub-heading 1704.90 35 per cent - 01.03. 00
All goods other than white
chocolate
113. Other colouring matters (all Sub-heading 3206.90 35 per cent
goods)
114. Other pigments (all goods) Sub-heading 3212.90 40 per cent
115. Artists; sign board painter's Sub-heading 3213.00 40 per cent
colours (all goods)
116. Ceramic goods Sub-heading 6908.10 40 per cent
Omitted - 01.03.2003
117. Other ceramic goods Sub-heading 6908.90 40 per cent
118. Sanitary wares of iron or Sub-heading 7324.00 40 per cent
steel
119. Sanitary wares of copper Sub-heading 7418.90 40 per cent
120. All goods - VCRs, VCPs Sub-heading 8521.00 40 per cent
121- Electrical apparatus for Sub-heading 8536.10, - 40 per cent
122. Switching or protecting Sub-heading 8536.90
electrical circuits - all
goods
From 1March 2003
123. White chocolate Sub-heading 1704.90 40 per cent

81
 t •
\It /

124. All goods Sub-heading 2404.41 50 per cent Jt">"'ICAI~~'\.A~"

.1-
.3 Special features/clarifications I,,),.~·

(i) Sub-Section (I) of Section 4A applies only when the MRP is required to be
indicated under the provisions of Standards of Weights and Measures Act, 1976 or any
law for the time being in force. In case a manufacturer voluntarily affixes MRP which is
not statutorily required, then the excise duty on goods in such packing shall not be
charged on the basis of Section 4A of the Act [Board's Circular [Link].411/44/98-CX
dated 31 July 1998 (1998 (102) ELT - T.34)].

(ii) The value of goods covered under the MRP system of valuation, shall be deemed
to be the retail price declared on such goods less the notified amount of abatement from
such retail price. In view of statutory requirement of the retail sale price under the
Standards of Weights and Measures (Packaged Commodities) Rules, 1977 for multi
piece packages intended for retail sale shall be assessed to duty under the provision of
Section 4A of the Act (Board's Circular No.673/64/2002-CX dated 28 October 2002).

(iii) It is the duty of the manufacturer (may be manufacturing goods on job work basis
for brand name owner) to declare Maximum Retail Price properly and correctly. In view
of the all inclusive definition of "retail sale price" where extra amounts are collected
from the ultimate customers of coloured televisions as local taxes, octroi, freight etc. i.e.
beyond the retail sale price, the MRP declared can not be considered to be the sole
consideration for sale to the ultimate customer. In such cases specific rates of excise
duty will be required to be collected from the manufacturers of coloured television
(Board's Circular No.432/65/98 CX.3 dated 23 November 1998).

(iv) As per the Board's Circular No.459/25/99-CX., dated 08 June 1999 [See 1999
(111)E.L.T.T3] the "Proforma of Declaration" under Rule 173C relating to commodities
notified under Section 4A had been specified. In Note (2) in the said Proforma, (which
was based on erstwhile Explanation 2 to Section 4A) it was mentioned that in case of
different retail sale price for different regions/States, the highest of all such retail sale
price shall be mentioned in column 5 of the Declaration." Now, in the Finance Act.
2000, effective from 12 May 2000, the Explanation 2 to Section 4A has been modified.
It read as under: - .

"(a) Where on the package of any excisable goods more than one retail sale.
price is declared, the maximum of such retail sale price shall be deemed to be the
retail sale price for the purposes of this section.

(b) Where different retail sale prices are declared on different packages for
the sale of any excisable goods in packaged form in different areas, each such
retail sale price shall be the retail sale price for the purpose of valuation of the
excisable goods intended to be sold in the area to which the retail sale price
relates. "

In view of the aforesaid amendment in Section 4A, Board decided to omit Note
(2) in the "Proforma of Declaration" specified under Circular No.459/25/99-CX., dated
08 June 1999 with effect from 12 May, 2000. Wherever necessary, the assessees may
file a fresh declaration as per new provisions (Board's Circular No.531127/2000-CX.,
([Link].202/01/98 CX-6) dated 24 May 2000).

82
 (v)(a) In respect of all goods (whether notified under Section 4A or not) which are not
statutorily required to print/declare the retail sale price on the packages under the
provisions of the Standards of Weight and Measures Act, 1976, or the rules made there
~ under or any other law for the time being in force, valuation will be done under Section 4
(or under Section 3(2) of the Central Excise Act, 1944, if tariff values have been fixed
. for the commodity). Thus, there could be instances where the same notified commodity
would be partly assessed on the basis of MRP under Section 4A and partly on the basis
of normal price (prior to 1 July 2000) of transaction value (from 1 July 2000) under
Section 4 of the Act.

(b) The Standards of Weights and Measures Act, 1976, and the rules made there
under, are administered by the State Governments. Instances of dispute could arise
between the department and the assessee as to whether, in respect of a particular
commodity/transaction, the assessee is exempted from declaring the retail price or not.
In case of such doubt a clarification may be obtained from the concerned department
(generally the Metrology department) of the State Government.

(c) If an assessee does not declare or print the retails sale price in respect of a
notified commodity, which it is statutorily required to do under the provisions of Weight
and Measures Act, or any other law for the time being in force, the goods, on removal,
will be liable to confiscation under Section 4A(4) of the Central Excise Act, 1944 .

. (Board's Circular No. 625/J6/2002-CX ([Link].6/44/2000-CXI) dated 28 February 2002)

@- Changes in definition of Retail Sale Price (RSP) through Budget 2003

(i) The definition of retail sale price (RSP), as mentioned in Explanation I to section
4A of the Central Excise Act has been modified so as to extend it also to cases where the
governing law on such goods permits declaration of retail sale prices exclusive of any
tax, local or otherwise. For illustration, Drug Price Control order (DPCO) prescribes
declaration of retail sale price excluding local taxes in respect of certain medicines
falling in its ambit. The amendment enables the Government to prescribe RSP based
assessment to goods on which retail sale price is required to be declared under such Act
or rules, requiring declaration of retail sale price exclusive of any tax local, otherwise.

(ii) Section 2(f) of Central Excise Act has been amended so as to provide that for
goods presently covered under the provisions of Section 4A, any process of packing, re-
packing, labeling or re-labeling of good, putting them into unit containers or any
subsequent declaration of RSP on goods or alteration thereof, shall amount to
manufacture.

(iii) Provisions of Section 4A ofthe Central Excise Act have been amended so as to: -

(a) provide that in case of affixing higher RSP subsequent to clearance of goods on
payment of duty on a lower RSP, the excise duty would be leviable on the basis of such
higher RSP affixed later on;

(b) assume powers to ascertain the RSP of goods having no RSP declared or the
declared RSP being tampered with, obliterated or altered; and

assume powers to make rules for such ascertainment.

 CHAPTER-10

EXEMPTIONS TO SMALL SCALE INDUSTRIAL UNITS (SSI)

10.1 Introduction

Exemptions from levy of the duty of excise are being given by the Government
on goods manufactured or produced in factories, which belong to what is commonly
referred to as the Small Scale Industry (SSI) Sector, to enable them to become
economically viable and to help competitive pricing to their products vis-a-vis large
scale manufacturers.

10.2 Scheme through notifications

A number of such notifications were issued from 1972 covering various

commodities and stipulating conditions governing the grant of exemption which were
operative till a comprehensive notification No.175/86-CE dated 1 March 1986 was
issued. This notification was amended from time to time almost every year before it was
superseded by notification No.1I93-CE dated 28 February 1993 as effective from 1 April
1993. Similarly, a number of notifications, as detailed below, were issued replacing the
existing notification every year as mentioned below: -

(i) Notification No. 7/97 CE dated 1 March 1997 as superseded by notification

no.l6/97-CE dated 1 April 1997;

(ii) Notification no.38/97-CE dated 27 June 1997;

iii) Notification No.8/98 CE and 9/98 CE both dated 2 June 1998 as amended ide
18/98-CE dated 18 July 1998 and 7/99-CE dated 28 February 1999 respectively.

(iv) Notification No.8/99-CE and 9/99-CE both dated 28 February 1999 (effecti e
from 1 April 1999) as amended vide notification No.16/99-CE dated 31 March 1999.
22/99-CE and 24/99-CE both dated 11 May 1999 and 512000-CE dated 21 February
2000.

v) Notification No.8/2000-CE and 9/2000-CE both dated 1 March 2000 as amended

vide notification NO.GSR703 (E) dated 1 December 2000 enhancing the exemption limit
from Rs.50 lakh to Rs.I00 lakh as effective from 1 April 2000.

vi) From 1 April 2001, notification No.81200 l-CE and 9/2001-CE both dated 1
March 2001 governing clearance of goods up to Rs.I00 lakh without payment of duty
with no claim of cenvat, and concessional rate up to Rs.I00 lakh if cenvat, credit was
taken respectively. Both the notifications were amended vide notification No. 11/2002-
CE dated 1 March 2002.

(vii) From 1 April 2002, notification No.8/2002-CE and 9/2002-CE both dated 1
March 2002.

viii) From 1 April 2003, notification No.8/2003 CE and 912003 CE both dated 1
March 2003.

84
10.3 Definition of small scale industrial (SSJ) unit

Although the new scheme of concessions was meant for the SSI units, a SSI unit
had not been defined either in notification 175/86-CE dated 1 March 1986 as amended or
elsewhere in the Central Excise Law. Prior to 1 April 1991, a SSI unit was known as an
undertaking having an investment in fixed assets in plant and machinery not exceeding
Rs.35 lakh, enhanced to Rs.60 lakh from 1 April 1991 and further to Rs.300 lakh vide
notification 0.857-(E) dated 10 December 1999 issued by the Ministry of Industry.
This limit has, however, further been reduced to Rs.100 lakh vide amending notification
0.1288(E) dated 24 December 1999.

10.4 Socio-economic objective

The exemption to small scale undertaking serves the socio-economic objective of

helping the SSI units in increasing the industrial production enabling them to sell their
goods at cheaper rate, thus, making them more competitive in the market.

From the year 1993 onwards the word small scale industrial unit is no more
mentioned in the Central Excise exemption notifications for availment of exemption
hitherto being known as SSI exemption. Since exemption is subjected to the condition
that value of clearances should not 'have exceeded Rs.300 lakh during the immediate
preceding year, any manufacturer whose clearances value of specified goods did not
exceed Rs.300 lakh during the immediate preceding year would be entitled to avail ofth
exemption not withstanding the value of investment on plant and machinery.

10.5 Main features

10.5.1 Scheme as effective from 1 April 2001

The main features of the scheme are: -

(a) Notification No.812001-CE dated 1 March 2001, as amended, grants exemption

to manufacturers having clearances of specified goods not exceeding rupees three crore
in the preceding financial year and not availing Cenvat credit upto an aggregate value of
clearances of rupees one crore and full exemption to captive consumption.

(b) Notification No.9/2001-CE dated 1 March 2001 allows exemption for assessees
availing cenvat credit. As per the notification concessional rate of duty, equal to sixty
per cent of normal rate of duty (i.e. 9.6 per cent advalorem for normal rate of 16 per cent
advalorem), for units having clearances not exceeding rupees three crore in the preceding
financial year and full exemption to captive consumption. The concessional rate is
admissible for first clearance of value not exceeding rupees one crore.

(c) For determining aggregate value of clearances during the financial year the
following clearances shall not be taken into account: -

(i) clearances of exempted goods (other than based on quantity or value of

clearances);

(ii) branded goods of another persons;

85
 (iii) value of specified input goods consumed captively in manufacture of
specified goods;

(iv) strips of plastics used within the factory of production for weaving of
fabrics etc.

(d) Exemption shall not be available to specified goods bearing a brand name or
trade name, whether registered or not of another person, other than components or
appliances for use as original equipments etc.

(e) Separate exemption will be available to the separate units where goods bear a
brand name or a trade name of (i) KVIC, (ii) SKVIB, (iii) NSIC, (iv) SSDC (v) SSIC and
where the specified goods are manufactured in a factory located in rural area.

(f) Exemption is available only on goods specified in the notification.

(g) Exemption ceases to be admissible once clearance exceeds the specified limit.

(h) Exemption is subject to filing of declaration furnishing requisite information to

the Deputy/Assistant Commissioner of Central Excise with a copy to Range
Superintendent.

10.5.2 From 1 April 2003

(i) Value of exempted goods [Link] included (excluding export) for calculating the
eligibility limit of Rs.3 crore for eligibility under SSI exemption limit with effect from 1
April 2003 (Refer notification No.8/2003 CE (NT), No.9/2003 CE (NT) both dated 1
March 2003 and NO.3012003 CE (NT) dated 1 April 2003).

(ii) The definition of "rural area" in the notification No.88/88 CE dated 1 March
1988 has been amended so as to align the same to that provided under clause (ft) of the
section (2), Khadi and Village Industries Commission Act, 1956.

(iii) SSI exemption has been extended to cotton fabrics (SH 52.07, 52.08 & 52.09
intended for use in the manufacture of cotton absorbent lint.

(iv) SSI exemption has been withdrawn on ceramic tiles, stainless steel patta/patti,
shody yarn, woollen yarn, uncut grey woven weft, pile fabric of cotton, articles of
apparel and terry towel.

10.5.3 Other relaxation

(i) No registration with the Directorate of Industries or DCSSI IS necessary for

availing of the exemption.

(ii) No departmental officer shall visit these factories except with the written
authorisation of Deputy/Assistant Commissioner of Central Excise for the purpose of
visit.

(iii) These manufacturers have been exempted from following regular export
procedure i.e. they do not have to file and follow the [Link]/[Link]/ARE/ARE-2
procedure.

86
(iv) In respect of exports made through merchant exporters documents prescribed by
the sales tax department as the proof of export are accepted.

(v) For movement of semi finished goods from one unit to another, private records
maintained by the assessee is accepted.

(vi) Assessee is permitted to submit quarterly return by zo" day of the month after
close of quarter.

(vii) No separate accounts are to be maintained by these units for excise purpose.
Private records showing date wise production, sales and bills or invoices are adequate for
excise purposes also.

(viii) Excise duty payment on clearance of goods can be made on monthly basis instead
of on consignment basis /fortnightly basis (Refer rule 8 of the Central Excise Rules,
2002).

(Authority: Ministry's letter [Link].333/33/93 TRU dated 17March 1994)

10.5.4 Important cases laws

SI. No. Decisions Case law

,
l. SSI exemption IS not available if Indian Manufacturing Advisors and
brand name of a non-manufacturer is Leasing Private Limited V.
used Commissioner of Central Excise
2002 (143) ELT 241 (SC)
I
2. An assessee availing SSI exemption Aggarwal Rolling Mills s.
can also take benefit of any other Commissioner of Central Exci e
notification to - which he may be 1997 (93) ELT 615 (Trib.)
entitled

3. An assessee can avail credit and SSI Franco Italian Company Private
exemption simultaneously on different Limited Vs. Commissioner of Central
specified goods Excise
2000 (120) ELT 792 (Trib.-LB)
f
4. Benefit of SSI notification IS not Lalchandwal Construction Ind.
deniable when the requirement of Limited Vs. Commissioner of Central
notification is satisfied Excise
1997 (92) ELT 703 (Trib.)
------
5. Assessee having exercised option for Commissioner of Central Excise Vs.
availing benefit of notification Diamond WIre Industries
No.9/99-CX, have no option to 2004 (167) ELT 46 (Trib.)
withdraw from the purview of Relying upon Supreme Court's
notification in the same financial year judgments in 1994 (73) ELT 769 (SC).

87
 /
CHAPTER-11

EXEMPTIONS, REMISSIONS AND REFUNDS OF DUTY

11.1 Exemptions

11.1.1 Power to grant exemption

Section SA of Central Excise Act, 1944 empowers the Central Government to

exempt excisable goods-from the whole or any part of duty and also lays down the
manner in which such power can be validly exercised, i.e. to say, by issue of notification
published in the official gazette. While Section 3 authorises levy of excise duties,
Section SA(l) of the Act enables the Government to grant either full or partial exemption
of duty either absolutely or subject to conditions specified in the notification. Such
exempted rates are the prevailing effective rates. In terms of Section SA(2), Central
Government may by special order in each case exempt from payment of duty, for reasons
to be stated in the order, any excisable goods of strategic or secret nature, or for
charitable purposes. Under Section SA(3) effective rate allowed by a notification or
order shall not exceed tariff rate of duty.

11.1.2 Considerations for grant of exemptions

(a) To enable that the rates bear an equitable burden depending on quality of the
product falling in the same category.

(b) The incidence of duty on product manufactured by the cottage and small sector i
less than on those manufactured by the large and mechanised sectors.

(c) The semi or partially processed goods falling in the same category as finished
goods pay less duty than those finished goo~.

(d) The same category of goods when used for special industrial purposes pay lower
duty than when used for other purposes.

(e) Different rates of duty are fixed on intermediate products according to the sector
in which these intermediate products are used for further manufacture (e.g. hank yam
used by the cotton textile handloom industry).

11.1.3 Various types of exemption: -

The nature of exemptions may be broadly categorised under the following heads:

(i) Based on specifications of goods.

Exemption is granted in respect of certain specified products falling under any

heading or sub-heading of the tariff without any condition. The goods for which the
exemption is claimed, should strictly fall under description of products so specified.
These are general exemptions issued under Section SA of the Central Excise Act, 1944.
:ostly exemptions fall under this category.

88
(ii) Based on quantity or value of manufacture

Exemption may be with reference to a definite quantity cleared uniformly for all,
may be for a full or partial rate of duty in respect of a certain manufacturer with
reference to the value of clearance of goods in a year. Examples of these are goods
produced by the small scale units, cosmetics and toilet preparations.

(iii) End use basis

Exemptions may be with reference to a product conforming to a specification, or

having reference to the end use of products, for example alkyd resins are exempt from
duty and newsprint carries certain exemption depending on end use. Vegetable Non
Essential (VNE) oils used in soap is another such example. A manufacturer who intends
to avail of the exemption under notification issued under Section 5A(1) of the Act when
such goods are intended to be used for the purpose specified in the notification,
procedure prescribed under Central Excise (Removal of goods at concessional rate of
duty for manufacture of goods) Rules, 2001 introduced vide notification No.34/2001-CE
(NT) dated 21 June 2001 as effective from 1 July 2001 shall be followed by the
manufacturer as well as by the buyer manufacturer.

(iv) Depends on nature of production

Exemption may also be with reference to certain types of goods. In all these
cases the fulfillment of the conditions is of paramount importance e.g. matches produced
in a non-mechanised sector, petroleum products cleared from four specific refineries in
north east (refer notification No.2712002-CE dated 1 March 2002 as amended).

(v) Specific purpose

Exemptions may be general, covering all headings and sub-headings of the Tariff
or particular with reference to a particular heading or sub-heading of the Tariff although
both types of exemptions may be issued in exercise of the powers delegated to the
Government under Section 5A. Goods cleared for specific flood relief works is an
example of the former category.

11.1.4 Exemption restricted to specified goods

In case of exemptions specifying the chapter, heading or sub-heading, the

application is confined to that particular chapter, heading or sub-heading only.

11.1.5 Notifications to be laid before Parliament

Under Section 38(2) of the Act every notification issued under sub-Section (1) of
ection 5A shall be laid before each House of Parliament in the manner provided in that
~ ction.

1.1.6 Interpretation of Amendment

In interpreting amending notifications' the following principle may have to be

ept in mind: -

Boards circular NoA/16/64 ex VII dated 24.09.1964

89
 Whenever an amended Act has to be applied, subsequent to the date of
amendment, the various amended provisions of the Act have to be read alongwith the
[Link] as though they are part of it. This is for the purpose of determining
what the meaning of any particular provisions of the Act as amended is, whether it is in
unamended part or in the amended part. As an exemption notification cannot be issued
retrospectively, the same principle applies as to the date of effect of amendment to
notification.

11.1.7 Conditions to apply

In applying the exemption, the conditions laid down in the relevant notification
are of prime importance. These conditions are required to be fulfilled in all respects.

(a) In respect of quantitative/monetary limits prescribed on total production!

clearance of excisable goods, the total of such excisable goods produced/cleared shall be
taken to check the ceiling.

(b) In respect of exemptions with reference to clearance, the clearances may have to
be followed in a chronological order, the first slab being applied for the earlier clearance
and the second slab after exhausting the quantity of value specified in the first slab and
so on.

(c) If a factory is run at different times of any financial year by different

manufacturers, the, exemption may have to be applied with reference to the total quantity
produced/cleared by all the mariufacturers during the year and not separately to each
manufacturer.

I d) Exemption is available in certain cases. in respect of goods used for certain

specified purposes, that is, for use in the manufacture of some other specified products
either excisable or non-excisable. The end u?e criterion is important. Goods may
urportedly be cleared for the intended purpose, but ultimately may be utilised for a
different purpose. In such cases the concessional rates (including nil duty) will not
pply. The correctness or otherwise of the application of exemption notification in these
cases cannot be conclusively determined till goods are actually utilised for the specified
urposes. In these cases generally procedure laid down in Central Excise (Removal of
goods at concessional rate of duty for manufacture of goods) Rules, 2001 are to be
: llowed.

Exemption of duty paid may take the form of a set off in the final analysis. The
rding of the notification invariably provides for exemption of the goods, equivalent to
.3 duty already paid in respect of certain part, component or accessory. These may be
the same heading or sub-heading or may relate to different headings or sub-headings.
rmally in such cases procedure in Cenvat rules is followed for allowing credit of duty
eady paid on the raw materials on components/parts.

An exemption may be with reference to ownership of one or more factories. In

cases, declarations at the time of registration of factory are obtained from
ufacturer and verified by the department.

90
11.1.8 General Exemptions

SI. otification o. Subject

o.
1. Captive consumption (goods used within factory of production)
1.1 67/95-C.E., dated 16.03.1995 Exemption to all capital goods and inputs if
captively consumed within the factory of
production
1.2 83/92-C.E., dated 16.09.1992 Exemption to all excisable goods used within
the factory of production for manufacture of
final product subject to the conditions of
certain specified notification
1.3 10/96-C.E., dated 23.07.1996 Exemption to goods consumed within the
factory of their production in the manufacture
of specified goods
2. Goods manufactured on Job Work basis
83/94-C.E., dated 11.04.1994, Exemption to goods specified in the
as amended Exemption Notification os.8/200 l-C.E. and
912001-C.E., if manufactured on job work
basis
_.2 84/94-C.E., dated 11.04.1994, Exemption to goods specified in the I
as amended Exemption Notification Nos.8/2001-C.E. and
9/200 l-C.E., if cleared for job work
_.3 214/86-C.E., dated 25.03.1986 Exemption to specified items if manufactured
in -a factory as a job work and used in the
manufacture of final products
_.4 70/92-C.E., dated 17.06.1992 Exemption to goods manufactured in a factory
as a job work and used by the specified
undertakings
Goods produced without the use of power
"'.1 167/86-C.E., dated 01.03.1986 Exemption to specified goods produced
without the aid of power and falling under
Chapters)3, 36, 51, 69, 71 and 83
Cottage and Village Industry Products
-.l 198/87-C.E., dated 28.08.1987 Exemption to genuine specified products of
village industry
-.2 88/88-C.E., dated 01.03.1988 Exemption to certain specified good
manufactured in rural areas by Co-
operatives/K.V.I.C., etc.
Repairing, Reconditioning and Re-engineering
:.1 138/94-C.E., dated 10.11.1994 Exemption to excisable goods meant for
repairing, reconditioning and re-engineering

91
6. Exhibitions and Trade Fairs
6.1 263179-C.E., dated 22.09.1979 Exemption to goods sent abroad as exhibits for
exhibition in International Trade Fair or for
demonstration or carrying out tests or trials
6.2 215/84-C.E., dated 09.11.1984 Exemption to certain goods if cleared for
display in any fair or exhibition
7. Technical, Educational and Research Institutes
7.1 167171-C.E., dated 11.09.1971 Exemption to goods produced in a technical,
educational and research institute
7.2 10/97-C.E., dated 01.03.1997 Exemption to certain goods supplied to
specified research institutions
7.3 13/99-C.E., dated 28.02.1999 Exemption to goods designed and developed
by public funded research institutions, national
laboratories and universities and manufactured
by an Indian Company
Goods produced in Government Factories, Mines, Mints and Prisons and
Defence Production etc.
.1 62/95-C.E., dated 16.03.1995 Exemption to goods manufactured by Central
Government factories
.2 63/95-C.E., dated 16.03.1995 Exemption to goods manufactured by specified
UnitslInstitutions for use by Government
department or Defence purposes
.3 64/95-C.E., dated 16.03.1995 Exemption to goods supplied for defence and
.other specified purposes
.4 74/93-C.E., dated 28.02.1993 Exemption to specified goods manufactured in
a State Government factory and intended for
use in any of its department
9. Solar and Other Natural Energy, Chulhas and Nuclear Fuel
9.1 62/91-C.E., dated 25.07.1991 Exemption to improved Chulhas (including
smokeless chulhas) capable of burning wood,
agrowaste, cowdung, briquettes and coal
.2 130/94-C.E., dated 21.09.1994 Exemption to goods required for Nuclear Fuel
Complex
10. Ship, ship's Stores and ship Breaking
10.1 82/84-C.E., dated 31.03.1984 Exemption to capital goods, components and
raw materials cleared for repair of goods
falling under heading 89.01, 89.02, 89.04,
89.05 (excluding floating or submersible
drilling or production platforms) and heading
89.06

92
11. Miscellaneous Exemptions
11.1 76/86-C.E., dated 10.02.1986 Exemption to certain specified goods of
erstwhile Tariff Item 68
11.2 65/95-C.E., dated 16.03.1995 Exemption to goods manufactured in factories
workshop and used for the maintenance of the
machinery installed in the factory
11.3 89/95-C.E., dated 16.03.1995 Exemption to waste, parings and scrap arising
during manufacture of exempted goods
11.4 108/95-C.E., dated 28.08.l995 Exemption to goods supplied to UN or an
specified International Organisation
11.5 32/99-C.E., dated 08.07.l999 Exemption from excise duty and additional
excise duty to goods cleared from a unit
located in the Growth Centre or Integrated
Infrastructure Development Centre or Export
Promotion Industrial park or Industrial Estate
or Industrial Area or Commercial Estates or
Scheme Area
11.6 33/99-C.E., dated 08.07.1999 Exemption to specified goods of factories in
North East (Assam, Tripura, Meghalaya,
Mizoram, Manipur, Nagaland or Arunachal
Pradesh)
11.7 43/2000-C.E., dated 18.08.2000 Exemption to Steel and cement supplied to
indenting agents for use in the construction of
houses under the Indira Awas Yojana and
HUDCO Refinance Housing Scheme in the
notified cyclone affected areas
11.8 57/2002-C.E., dated 14.11.2002 Exemption to specified goods of factorie ID
the State of Jammu & Kashmir
11.9 49 & 50/2003-C.E., dated Exemption to specified goods of factorie in
10.06.2003 the State ofUttranchal and Himachal Prade h.
11.10 56 & 57/2003 CE dated Exemption to specified goods cleared from
25.06.2003 new units in Sikkim

11.1.9 Important cases laws

-

SI. o. Decisions Case law

1. Unless it is specified otherwise an Union of India Vs. Ganesh Das

exemption notification shall come into Bhojraj
effect on the date of issue 2000 (116) ELT 431 (SC)
I
2. Exemption notification is not only to HMM Limited Vs. Collector
be construed strictly but also 1996 (87) ELT 593 (SC)
reasonably having regard to language
employed therein

93
3. Even the Courts cannot interpose 2003 (158) ELT 675 (SC)
further conditions in the notification

4. Exemption which has become Chandrapur Magnets Private Limited

inapplicable because of Modvat credit Vs. Collector
having been availed can again become 1996(81) ELT 3 (SC)
permissible if the credit taken IS
reversed before removal of exempted
final product

11.2 Remissions

11.2.1 Authority in the Rules

The Central Government may, by rules, made under Section 5 of the Central
Excise Act, 1944, provide for remission of duty of excise leviable on any excisable
goods which due to any natural cause are found to be deficient in quantity.

Accordingly provision has been made in the Central Excise Rules, 200112002 for
remission of duty in respect of goods destroyed by natural cause or by unavoidable
accident during handling or storage in bonded store room. Duty may also be remitted in
case of defective or damaged goods (Rule 21 of Central Excise Rules may be
referred to).

11.2.2 Power not to recover duty of excise not levied or short levied as a result 0
general practice

Section-ll C of the Central Excise Act, 1944, provide that if the Central
Government is satisfied: -

(a) that a practice was, or is, generally prevalent regarding levy of duty of exci e
(including non-levy thereof) on any excisable goods; and

(b) that such goods were, or are liable: -

(i) to duty of excise in cases where according to the said practice the duty was not.
or is not being, levied, or

(ii) to a higher amount of duty of excise than what was, or is being levied, according
to the said practice.

then, the Central Government may, by notification in the official Gazette, direct that the
whole of the duty of excise payable on such goods, or as the case may be, the duty of
excise in excess of that payable on such goods, but for the said practice, shall not be
required to be paid in respect of the goods on which the duty of excise was not, or is not
being levied, or was, or is being short-levied, in accordance with the said practice.

94
11.3 Refunds

11.3.1 Provisions in the ActIRules

(i) Section 11B of the Central Excise Act, 1944 provides for grant of refunds due to
certain causes, within a period of six months (one year from 12 May 2000) from the
relevant date whiclt has been defined in the Act itself. The limitation of six months/one
year shall not be applicable where any duty has been paid under protest. The amount of
refund includes claim of rebate.

(ii) If on receipt of any application for refund, the Deputy/Assistant Commissioner of

Central Excise is satisfied that the whole or any part of the duty of excise paid by the
applicant is refundable he may make an order accordingly and amount so determined
shall be credited to the Consumer Welfare Fund or paid to the applicant if such amount is
relatable to exported goods, goods used in manufacture of exported goods, unspent
balance in PLA or incidence of duty borne by the assessee.

(iii) Where as a result of any order passed in appeal under the Central Excise Act.
1944 refund of any duty of excise becomes due to any person, the Deputy/Assistant
Commissioner of Central Excise may refund the amount to such person without his
having to make any claim in that behalf.

(iv) Save as otherwise provided by or under this Act, no claim for refund of any duty
of excise shall be entertained.

(v) Notwithstanding anything contained in any other law, the provision of Section
lIB shall also apply to a claim for refund of any amount collected as the duty of excise
made on the ground that the goods in respect of which such amount was collected were
not excisable or were entitled to exemption from duty and no Court shall have any
jurisdiction in respect of such claim.

(vi) The Board had decided that whenever refunds exceeding Rs.50,000 (Rupees fifty
thousand only) are granted to Central Excise assessees, particulars of such refunds
should invariably be intimated to the Income Tax authorities by the Central Excise
authorities (Authority [Link].21 0114174 - CX dated 01.02.1975 and 13.07.1975 reiterated
vide Circular No.40/90 CX 8 dated 3 July 1990).

(vii) As per Section 11BB of the Act, if any duty ordered to be refunded under Section
11B is not refunded within three months from the date of receipt of the proper refund
application, interest at the notified rate (Nine per cent from 11 May 2001 and further
reduced to eight per cent per annum from 12 May 2002 and to six per cent from 12
eptember 2003) shall be paid by the Government.

(viii) The refund of Cenvat credit of specified duty allowed in respect of inputs used in
or in relation to the manufacture of final products which are exported under bond is
allowed under rule 5 of the Cenvat Credit Rules, 2001 subject to conditions and
procedure laid down in notification No.1112002 CE (NT) dated 1 March 2002.

11.3.2 Types of refunds

Types of refunds of Central Excise duty can be broadly categorised as: -

95
(i) amount paid through inadvertence, error or misconstruction (Refunds arising out
of Central Duties of Excise (Retrospective Exemption) Act, 1986 are also included in
this category); /

(ii) unused damaged Central excise stamps;

(iii) rebate of duty on goods exported outside India and refund of duty paid on the
inputs used in the final products cleared for export under bond;

(iv) duty paid on goods brought into the factory for remaking, reprocessing etc.;

(v) fines and penalties ordered to be refunded;

(vi) claims arising as a result of adjudication order/order-in-appeallrevision passed by

competent authority and refund of duty paid under protest;

(vii) balance in the personal ledger account (PLA) on its closure; and

(viii) initial deposits by units working under compounded levy scheme.

11.3.3 Procedure for grant of refunds

The' Board have issued instructions from time to time, regarding expeditious
disposal of refund claims. The circular No.398/31198 CX ([Link].201/04/98 CX6) dated 2
June 1998, may be perused. The salient features .are as follows: -

(i) the assessee should file the refund claim with the concerned Deputy/Assistant
Commissioner and send its copy to the Range Superintendent.

(ii) the assessee shall file the claim in proper form with all supporting
documents/records supporting his declaration that he has not passed on the dutj
incidence to other.

(iii) claim .should be signed by the claimant or his authorised person and shall be pre
receipted with revenue stamp.

(iv) the Range Superintendent should complete the scrutiny of the refund claim within
2 weeks from the date of its receipt in the Range and send his report to the
Deputy/Assistant Commissioner of Central Excise.

(v) in the Divisional Office final processing should be completed and

Deputy/Assistant Commissioner of Central Excise orders obtained and in case of any
deficiencies the applicant should be informed of within 15 days with a copy to Range
Office.

(vi) cheque for payment should be issued (in part or in full) within 3 days from the
date orders are passed by Deputy/Assistant Commissioner of Central Excise.

(vii) all refund claim papers shall be sent by the Deputy/Assistant Commissioner to
the Commissionerate Headquarters (to the Addl./Joint Commissioner - Audit) within a
week after payment for post audit. The cell in headquarters may undertake examination
on merit of each such claim where the amount of refund granted is Rs.5 lakh or more and

96
post audit of other claims may be undertaken on basis of random selection by
Deputy/Assistant Commissioner of Central Excise.

(viii) instructions have also been issued by the Board from time to time prescribing
procedure to be followed before sanction of refunds of duty paid in different cases. Some
ofthe instructions are mentioned below :-

Letter No. and date Subject matter

a) >- [Link].210/8/86-CX6 dated >- Refund of duty erroneously paid, as
24.02.1988 per Section 11C
b) >- [Link].268/20/89-CX8 (Circular >- Applicability of doctrine of unjust
No. 18/90-CX8) dated 28.03.1990. enrichment
>- [Link].268/20/89-CX.8 (Circular -do-
No.53/90-CX) dated 26.09.1990
>- [Link].390/154/97-JC (Circular -do-
No.317/33/97-CX) dated 18.06.1997
>- [Link].3871231/99-JC (Circular -do-
No.518/14/2000-CX) dated
03.03.2000
>- [Link].268/15/2000-CX8 (Circular -do-
No.523/9/2000-CX) dated
06.04.2000
c) , >- [Link].264/9/90-CX8 (Circular >- Expeditious disposal of refund
No.21/90-CX8) dated 04.04.l990 claims
>- [Link].268/29/95-CX8 (Circular -do-
No. 130/41/95-CX) dated 30.05.1995
>- [Link].201l04/98-CX6 (Circular -do-
No.398/31/98-CX) dated 02.06.1998
d) >- [Link].268/44/92-CX8 (Circular >- Rejection of refund without
No.20/92-CX8) dated 29.10.1992 explaining reasons
>- [Link].268/44/92-CX8 (Circular -do-
No.23/92-CX8) dated 07.12.1992
e) >- [Link].213/28/92-CX6 (Circular >- Appropriation of refund due against
No. 13/92-CX6) dated 04.l1.1992 confirmed demands
f) ~ [Link].268/9/96-CX8 (Circular >- Procedure regarding refund claimed
No. 169/3/96-CX) dated 23.01.1996 under notification No.64/93 by car
manufacturers for saloon cars used
as taxis
g) >- [Link].276/10/90-CX8A dated >- Expeditious disposal of refund claim
01.01.1991 relating to Motor Vehicles under
notification No.4/97
h) >- [Link].268/46/95-CX.8 (Circular >- System defects in the working of
No. 174/8/96-CX) dated 11.02.1996 Chief Accounting Officer in respect
of cross verification of refund claims

97
11.3.4 Payment of refunds by Cheques

Government of India have with effect from November 1966 introduced a special
procedure for refunds of excise revenue by cheques. The salient features of the scheme
are: -

(i) Application for refund is presented in prescribed form to the proper officer in
duplicate.

(ii) The sanctioning authority maintains a register of refunds in the prescribed form
and enters all such applications therein.

(iii) On admitting in the claim, payment is made by cheque for amounts exceeding
Rs.10. For sums ofRs.10 and less, a self-cheque will be drawn by the Deputy/Assistant
Commissioner and the amount is remitted by M.O., the commission on M.O. being met
out of office contingencies.

(iv) On s", is", 22nd and last date of each month, the Deputy/Assistant
Commissioner of Central Excise sends a statement in the proformae prescribed to the
Chief Accounts Officer in duplicate in respect of the claims paid by him.

(v) The Chief Accounts Officer post-audits the payment in the usual manner and
returns one copy of the proformae to the Deputy/Assistant Commissioner of Central
Excise.

11.3.5 Audit checks on Refunds/"

(i) For this purpose the refund vouchers received alongwith the compiled account
rendered by the Chief Accounts Officers should be obtained from the concerned Pa and
Accounts Officer.

(ii) Checking in Chief Accounts Office: While conducting audit, the following
checks should be applied.

(a) The refund bill is prepared in the proper form complete in all respects and
is properly receipted.

(b) The claim is preferred within the time limit provided.

(c) The claim is sanctioned by the Deputy/Assistant Commissioner.

(d) The claim is noted against the original credit so as to guard against double
payments.

(iii) The audit is supplemented by audit in the respective Divisional Offices. The
following checks shall apply:

(a) A register of refunds is maintained properly and is posted up-to-date.

(b) A register of cheques in use is kept.

,
I'

98
 (c) Counterfoils of cheques should be scrutinised ill accordance with the
instructions.

(d) The refund claimed and passed is admissible under the rules and orders
and correctly worked out.

(e) The statements sent to the Chief Accounts Officer are returned duly
certified and there is a procedure to watch the same.

(f) The files relating to refunds are called for and scrutinised.

(iv) It is to be checked that if incidence of duty has already been passed on to the
ultimate buyer, the amount refundable is credited to the Consumer Welfare Fund

11.3.6 Important cases laws

I SI. No. Decisions Case law

l. Duty paid under the order of the court Mafat Lal Industries Limited Vs.
whether by order granting stay, Union of India
suspension, injunction or otherwise is 1999 (89) ELT 247 (SC)
to be treated as payment under protest

99
 CHAPTER-12

EXPORTS OF EXCISABLE GOODS

12.1 Introduction

Exports, in as much as they earn foreign exchange, are vital to a nation's

economy. Therefore, in the larger interests of the nation exports have to be encouraged,
and induced where necessary, especially to improve the competitiveness of indigenous
products in a world market. In order to bring down the export prices to world levels, it is
necessary that cheaper raw materials and components may be provided and the cost of
finished goods may be lowered by way of remission of duties on the excisable raw
materials and imported raw materials used therein. One of the several steps taken in this
direction is to give rebate of duty paid on excisable goods exported, and also in respect
of the excise duty paid on the indigenous materials and customs duty paid on the
imported material going into the manufacture of export goods irrespective of the fact
whether such goods by themselves are excisable or not, statutory provisions for these
have been made in the Central Excise Rules, 1944 and of 200 1 and also of 2002.

12.2 Types of exports

12.2.1 Physical exports

The exports may be broadly grouped as follows: -

(i) Export of excisable goods from the factory/warehouse under claim of rebate
(Rule 18 of Central Excise Rules, 2001).

(ii) Export of excisable goods as such from the factory/warehouse without payment
of duty under bond (Rule 19).

(iii) Export of specified goods manufactured from specified excisable

materials/components parts under claim for rebate of duty paid on such excisable
materials/component parts (Rule 18).

(iv) Manufacture of specified goods in bond by using non-duty paid specified

excisable materials/component parts and export of such manufactured goods (Rule 19).

(v) Export of exempted goods.

vi) Export of manufactured goods wherein both indigenous excisable materials/

omponent parts and imported materials/component parts are used, under claim for
drawback under the Customs and Central Excise Duties Export Drawback (General)
Rules, 1971.

vii) Export from Free Trade Zone (FTZ), EXPOliProcessing Zones (EPZ), Electronics
Technology Parks and Jewellery Complexes, 100 per cent Export Oriented Units (lOO %
EOU).

lOO
12.2.2 Deemed exports

(i) Coverage

According to EXIM Policy (2002-07), the following supplies of goods are treated
as Deemed Exports, provided the goods are manufactured in India: -

(a) supply of goods against licence/DFRC under Duty Exemption Remission

Scheme;

(b) supply of goods to the EOU units or units in Export Processing Zone
(EPZ)/STPs or EHTPs;

(c) supply of capital goods and spares to the extent of 10 per cerit of the FOB
Value to fertilizer Plants;

(c) supply of goods to projects financed by multilateral or bilateral agencies

or Funds as notified by the Ministry of Finance under international competitive
bidding or under limited tender system;

(e) supply of goods to EPCG licence holders;

(f) supply of goods to any Project or purpose for which Ministry of Finance
notifies imports at zero Customs duty;

(g) supply of goods to Project in the power, oil and gas sectors not covered in
(f) above;

(h) supply of marine freight containers by 100 per cent EOU (Domestic
freight containers-manufacturers) provided such containers are exported within
six months as such further period as permitted by Customs;

(i) supply to projects funded by U.N. agencies; and

(j) Supply of goods to Nuclear Power Projects through competitive bidding

as opposed to International Competitive bidding.

Deemed exports are eligible for the following benefits: -

(i) Advance licence for intermediate supply/deemed export;

(ii) Deemed export drawback; and

(iii) Refund of terminal Excise duty.

(ii) Export benefits

In general, the level of export benefits for deemed exports is on par with physical
exports but the agency giving that relief is different. While export benefits for physical
exports are disbursed by Customs and Central Excise Department, those for deemed
exports are given by the Regional Licensing authorities under the DGFT, Ministry of
Commerce.

101
 The supplies under category (a) above are made against an Advance Release
Order CARO) issued by the Licensing Authority who issued the original Advance
Licence or against back to back Letter of Credit issued by the Bank. Such ARO is issued
on the basis of consent letter from indigenous supplier and after rendering the original
Advance Licence invalid for the import of the input in question to the extent covered by
ARO. Supplies in respect of categories (b) to (e) are at international prices as certified
by the receiving agencies/project authorities.

12.3 Export under claim for rebate

12.3.1 The conditions and procedure

The conditions and procedure relating to export under claim of rebate are
contained in Notification 4012001-Central Excise (N.T.) dated 26 June, 2001 issued
under rule 18 of the Central Excise (No.2) Rules, 2001 (hereinafter referred to as the said
Rules). The new rule 18 corresponds to the earlier rule 12 of the Central Excise Rule .
1944.

As per the definition of the term 'refund' in Section lIB of the Central Exci
Act, 1944, refund includes 'rebate' of duty of excise on excisable goods exported out of
India or on excisable materials used in the manufacture of goods which are exported out
of India. Thus, the procedure specified in the said Rules and the notification i sued
thereunder are subject to Section lIB of the said Act.

12.3.2 Categories of exports under claim of rebate

A Export of all excisable goods (other than mineral oils supplied as ship store
to aircraft on the foreign run) to all countries except Nepal and Bhutan

A.l Conditions relating to the export

(i) It is essential that the excisable goods shall be exported after payment of duty.
directly from a factory or warehouse. The duty may be discharged in the manner
specified under rule 8 of the said Rules, i.e. on monthly basis.

(ii) In certain cases, the Board may issue instructions/procedures for exporting the
duty paid goods from a place other than the factory or the warehouse.

(iii) The excisable goods shall be exported within six months or period extended by
the CCE.

(iv) The excisable goods supplied as ship's stores for consumption on board a vessel
bound for any foreign port are covered by the notification mentioned above.

(v) The market price of the excisable goods at the time of exportation should not be
less than the amount of rebate of duty claimed.

(vi) The rebate claim will be admissible only if the amount of rebate of duty
admissible is five hundred rupees or more.

(vii) The rebate of duty paid on those excisable goods export of which is prohibited
under any law for the time being in force, shall not be made.

102
-\..2 Documents

A.2.! ARE.! is the export document which is to be prepared in quintuplicate (5 copies).

This is similar to the erstwhile ARA. On A.R.E.l, certain declarations are required to be
given by the exporter. The different copies of ARE. 1 forms should be of different
colours and distributed as indicated below: -

Original (First copy) White To be returned to Exporter after endorsement

and signature by superintendent or Inspector
Duplicate (Second copy) Buff -do-
Triplicate (Third copy) Pink To be sent to officer with whom rebate claim is
to be filed
Quadruplicate (Fourth copy) Green Office copy with exporter

Quintuplicate (Fifth COpY) Blue Optional copy with exporter

A2.2 An invoice shall also be prepared in terms of rule 11.

A2.3 There is no specified form for filing claim of rebate. The same may be done by
the exporter on their letterhead and filed with the requisite documents.

A.3 Procedure for clearance of goods for export

The exporter has two optional procedures regarding the manner in which he may
clear the export consignments from the factory or warehouse as mentioned below: -

A.3.1 Examination and sealing of goods at place of despatch

(i) The exporter is required to prepare fiv~ copies of application in the Form ARE-I.
as per format specified in Annexure-I to Notification No. 4012001-Cel1tral Excise .T.)
dated 26.6.2001. The goods shall be assessed to duty in the same manner as the good
for home consumption.

(ii) The duty payable shall be determined on the ARE. I and invoice and recorded in
the Daily Stock Account and should be paid in the manner specified in rule 8 of the
Rules.

(iii) The exporter may request the Jurisdictional Superintendent or Inspector of

Central Excise for examination and sealing at the place of despatch.

(iv) In case of exports under Duty Exemption Entitlement Certificate Scheme

(DEEC), Duty Exemption Pass Book Scheme (DEPB), and claim for Drawback, the
Superintendent of Central Excise shall also examine and seal the consignment and sign
the documents in token of having done so.

(v) The Superintendent or Inspector of Central Excise, as the case may be, will verify
the identity of goods mentioned in the application and the particulars of the duty paid or
payable, seal each package or the container, and endorse and sign each copy of the
application in token of having such examination done.

103
A.3.2 Despatch of goods by self-sealing and self-certification

(i) Self-sealing and self-certification is a scheme where the exporter who is a

manufacturer or owner of a warehouse, may remove the goods for export from his
factory or warehouse without examination by a Central Excise Officer. This procedure
will also be permitted in the cases where a merchant-exporter procures the goods directly
from a factory or warehouse. In both cases, the manufacturer of the export goods or
owner of the warehouse shall take the responsibility of sealing and certification.

(ii) The Superintendent and Inspector of Central Excise shall verify the particulars of
assessment, the correctness of the amount of duty paid or payable. If he is satisfied with
the particulars, he will endorse the relevant A.R.E. 1.

A.4 Examination of goods at the place of export

AA.1 The place of export may be a Port, Airport, Inland Container Depot, Customs
Freight Station or Land Customs Station.

AA.2 The exporter shall present together with original, duplicate and quintuplicate
(optional) copies of the application (A.R.E. 1) to the Commissioner of Customs or other
duly appointed officer - normally goods are presented in the designated export shed.

AA.3 The goods are examined by the Customs for the purposes of Central Excise to
establish the identity and quantity.

AAA For Central Excise purposes, the Officers of Customs at the place of export shall
examine the consignments with the particulars as cited in the application (A.R.E. 1). He
will certify on the copies of the A.R.E. 1 that the goods have been duly exported citing
the shipping bill number and date and other particulars of export.

AA.S The officer of Customs shall return the original and quintuplicate (optional cop
for exporter) copies of application to the exporter and forward the duplicate copy of
application either by post or by handing over to the exporter in a tamper proof sealed
cover to the officer specified in the application.

AA.6 The exporter shall use the quintuplicate copy for purposes of claiming any other
export incentive.

A.S Sanction of claim for rebate by Central Excise

A.S.1 The rebate claim can be sanctioned by any of the following officers of Central
Excise viz. the Deputy/Assistant Commissioner of Central Excise having jurisdiction
over the factory of production of export goods or the warehouse; or Maritime
Commissioner.

A.S.2 The following documents shall be required for filing claim of rebate: -

(i) A request on the letterhead of the exporter containing claim of rebate,

A.R.E. 1 numbers and dates, corresponding invoice numbers and dates, amount
of rebate on each A.R.E. 1 and its calculations,

(ii) original copy of the A.R.E.1,

104
 (iii) invoice issued under rule 11,

(iv) self attested copy of shipping Bill, and

(v) self attested copy of Bill of Lading.

(vi) Disclaimer Certificate [in case where claimant is other than exporter]

A.5.3 After satisfying himself that the goods cleared for export under the relevant
A.R.E. 1 applications mentioned in the claim were actually exported, the rebate
sanctioning authority will sanction the rebate, in part or full.

A.5.4 Where the individual rebate claim exceeds 5 lakh rupees, they shall be pre-
audited before these are disbursed.

A.6 Export by parcel post

In case of export by parcel post after the goods intended for export have been
sealed, the exporter shall affix to the duplicate application sufficient postage stamps to
cover postal charges and shall present the documents, together with the package or
packages to which it refers, to the postmaster of the Office of booking.

A.7 Filing of rebate claims by electronic declaration and sanction thereof

through Electronic Data Inter-change (EDI)

A.7.1 The new concept of filing of rebate claim and its sanction through EDI
established by the Customs formations at different ports/airports/ICDs/CFSs has been
incorporated in the new procedure. However, its implementation is dependent upon
development of software and formats of electronic forms, administrative set-up at the
places of exports for auditing such claims and putting in place the necessary hardware.
This facility will be available at such places and from such time as may be specified by
the Board.

B Export to Nepal or Bhutan

B.1. Procedure

For export to Nepal, a different procedure has to be followed considering that the
rebate is granted to His Majesty's Government of Nepal based on Indo-Nepal Treaty.
Currently, the procedure is specified only for exports through specified Land Customs
Stations. There is no rebate procedure for export to Bhutan.

B.2 Conditions of export

B.2.1 The conditions of export to Nepal are similar to export to other countries. For
details paragraph 12.3.2(i) may be referred to.

B.2.2 The whole or that part of duty as is granted as rebate to the exporter is not
allowed as rebate to His Majesty's Government of Nepal.

B.2.3 The goods can only be exported by land through any of the specified land
customs stations.

105
B.3 Nepal Invoice

The Format of 'Nepal Invoice' has been specified in the notification no. 40/2001-
Central Excise (N.T.) dated 26.6.2001. It is similar to the erstwhile form except minor
modifications such as incorporating "duty paid or payable" in place of "duty paid" in line
with the Monthly Payment System.

B.4. Procedure for export to Nepal

BA.l The exporter is required to prepare five copies of Nepal Invoice as usual. The
goods shall be assessed to duty in the same manner as the goods for home consumption.

BA.2 The duty payable shall be determined on the Nepal Invoice and recorded in the
Daily Stock Account and should be paid in the manner specified in rule 8 of the Rules.

BA.3 The exporter may request the Jurisdictional Superintendent for examination and
sealing at the place of despatch 24 hours in advance.

BAA In case of exports under Duty Exemption Entitlement Certificate Scheme

(DEEC), Duty Exemption Pass Book Scheme (DEPB) and claim for Drawback, the
Superintendent of Central Excise shall also examine and seal the consignment and sign
the documents in token of having done so. The jurisdictional Deputy/Assistant
Commissioner of Central Excise may permit examination and sealing by Inspector.

BA.S The Superintendent or Inspector of Central Excise, as the case may be, will verify
the identity of goods mentioned in the application and the particulars of the duty paid or
payable and shall seal each package or the container. Thereafter, the said officer shall
endorse and sign and distribute each copy of the application in token of having such
examination done.

BA.6 The exporter or his agent shall then be free to remove the goods for export to
· epal, through the specified land customs stations.

B.5 Procedure at the land Customs station

B.5.1 The exporter or his agent shall present the goods along with the original copy of
invoice and the sealed cover containing duplicate and triplicate copies to the officer of
Customs in-charge of the land Customs station.

B.S.2 The Customs officer shall examine the goods with reference to the declarations in
the Nepal Invoice, shall make necessary entries in the register maintained at the land
Customs station and allow the goods to cross into the territory of Nepal.

B.S.3 He will also certify on each of the three copies of the invoice to this effect.

[Link] The Customs officer will then deliver the original copy of the invoice duly
endorsed to the exporter or his agent alongwith the goods for presentation to the
· epalese Customs Officer.

B.S.S He shall also send, directly the duplicate and triplicate copies of the invoice to the
· epalese Customs Officer in-charge of the check post through which the goods are to be
imported into Nepal.

106
B.5.6 The goods will then be produced before the Nepalese Customs Officer at the
corresponding border check post along with the original copy of the invoice.

The Nepalese Customs Officer, shall deal with the original copy as directed by
His Majesty's Government of Nepal and return the duplicate copy, after endorsing his
certificate of receipt of goods in Nepal directly to the officer of Customs in-charge of the
land Customs station .

. B.5.7 The officer in-charge ofthe land customs station shall forward the duplicate copy
to the Deputy Director of Inspection, Customs and Central Excise, Nepal Refund Wing,
New Delhi. For this purpose, the said officer in-charge of the land Customs station
should keep a note of the return of duplicate copies from the Nepalese Customs Officer
and remind the exporter for such copies as have not been received.

B.6 Procedure to be followed by the Directorate General of Inspection, Customs

and Central Excise (Nepal Refund Wing), New Delhi

B.6.1 The Directorate General of Inspection, Customs and Central Excise (Nepal
Refund Wing), New Delhi [hereinafter referred to as "the Directorate"] shall maintain
separate registers for each Indian Border Customs Check Post.

B.6.2 The duplicate invoice will be entered in the respective registers showing the
running serial number in the recapitulation statement register prescribed for the purpose.

B.6.3 At the end of every month he shall calculate the amount of rebate due in respect
of all certificates of exports received during that month and shall prepare a consolidated
statement to arrive at the amount of rebate due to His Majesty's Government of Nepal.

B.6.4 One copy of the recapitulation statement shall be forwarded to the Commissioner
of Central Excise concerned for verifying the payment of rebate to Nepal Government
and for issue of a post audit certificate in respect of the amount allowed as rebate against
each invoice passed in that bill.

B.6.5 Where any over payment is noticed the fact should be brought to the notice of the
Directorate for making necessary adjustment. .

B.6.6 One copy of the recapitulation statement shall be forwarded to His Majesty's
Government of Nepal.

B.6.7 One copy of the recapitulation statement shall remain as office copy with the
Directorate.

B.6.8 After recerving the recapitulation statement, the Commissioner will get a
verification conducted that the concerned factories have actually paid the duty of excise
against which the rebate is to be given.

B.6.9 In case the Directorate does not receive the duplicate copy of the invoice from the
Officer in-charge of the Indian Land Customs Station and the triplicate copy is not
received by the Nepal Government, necessary check shall be made with the officer in-
charge of the Indian Land Customs Station concerned as to the whereabouts of the
particular invoice.

107

p
C Special procedure for export of mineral oil supplied as stores for
consumption on board an aircraft on foreign run

C.l Introduction

A special procedure has been notified in respect of supplies of mineral oil

products falling under Chapter 27 of the First Schedule to the Central Excise Act, 1985
(5 of 1986) exported as stores for consumption on board an aircraft on foreign run vide
para (6) of Notification NoA0l2001-Central Excise (N.T.) dated 26 June 2001 as
amended.

C.2 Conditions of rebate

C.2.1 Earlier, the rebate was limited, by notification, to all countries, which did not
have land frontiers with India, except Pakistan, Bangladesh, Myanrnar and Bhutan
(though these countries have land frontier with India). But this facility was available b
executive instructions to all countries, including the countries, which were not appearing
in the notification for grant of this facility. The Government has now extended thi
facility to all countries, without any restrictions about the countries having land frontier
with India.

C.2.2 The products as remain on board an aircraft after completion of an internal

journey but prior to its reversion to foreign run, the rebate shall be without production of
duty paying documents but the proper officer of Customs shall certify the quantity of
products left out on board for determining the quantum of rebate.

I). Miscellaneous

D.I Sanction of rebate

The rebate sanctioning authority shall point out deficiency, if any, in the claim
within 15 days of lodging the same and ask the exporter to rectify the same within 1-
days. Queries/deficiencies shall be pointed out at one go and piecemeal queries avoided.
The claims of rebate of duty on export of goods are to be disposed of within a period of
two months.

The Supplementary rebate claim, if any, shall be filed within the stipulated time
provided under Section lIB of the Central Excise Act, 1944.

D.2 Entry of goods in another factory of the same manufacturer for

consolidation and loading of consignment for export:

Goods removed on A.R.E.1 from one factory of a manufacturer may be allowed

to enter in another factory of the said manufacturer ONLY for the purpose of
consolidation and loading of goods in second or subsequent factory(ies) and export
therefrom. The packages loaded in the vehicle shall be in sealed condition in their
original packing. The Central Excise Officer having jurisdiction over the second or
subsequent factory(ies) shall supervise the opening of the seal of container.

108
D.3 Cancellation of documents

After the goods are cleared for export on payment of appropriate duties of excise
under claim of rebate but are not exported for any reason, the Deputy/Assistant
Commissioner of Central Excise having jurisdiction over the factory or the warehouse,
shall, on being requested by the exporter in writing, cancel the export documents and
make necessary endorsements. Thereafter, the goods shall be treated as if thesewere
cleared for home-consumption. The goods need not be brought back to the factory or
warehouse.

E. Export under claim for rebate of duty on excisable material used in the
manufacture of export goods

E.l Introduction

(i) The Government has, by notification No. 41/2001-Central Excise (N.T.) dated 26
June 2001 allowed rebate of whole of the duty paid on excisable goods, which are in fact
materials or inputs for manufacture or processing of other goods, on their exportation out
of India, to any country except Nepal and Bhutan, to be paid subject to the conditions
and the procedure specified in the above-mentioned notification.

(ii) The benefit of input stage rebate can be claimed on export of all finished goods
whether excisable or not.

(iii) Any process not amounting to manufacture (such as packing, blending etc.) will
also be eligible for the benefit under said notification.

(iv) The expression 'material' shall mean all raw materials, consumables,
components, semi-finished goods, assemblies, sub-assemblies, intermediate goods,
accessories, parts and packing materials required for manufacture or processing of export
goods.

Cv) Rebate of Central Excise duty paid on equipment and machinery in the nature of
capital goods used in relation to manufacture or processing of finished goods exported
shall not be allowed.

(vi) The benefit of input stage rebate cannot be claimed III any of the following
situations: -

(a) where the finished goods are exported under claim for Duty Drawback.

(b) where the finished goods are exported in discharge of export obligations
under a Value Based Advance Licence or a Quantity Based Advance Licence
issued before 31 March 1995.

(c) where facility of input stage credit IS availed under CENV AT Credit
Rules, 2001.

(d) the market price of the goods is less than the rebate amount.

(e) the amount of rebate admissible is less than Rs.500/-.

109
(vii) The claim for rebate shall be filed within the time stipulated under Section lIB of
the Central Excise Act, 1944.

E.2 Procedure and conditions

The manufacturer or processor shall file a declaration in the prescribed Form with
the Deputy/Assistant Commissioner of Central Excise having jurisdiction over the
factory of manufacture describing the input output ratio of the finished goods and the
input goods.

E.3 Verification and grant of permission

(i) The Deputy/Assistant Commissioner of Central Excise shall verify the

correctness of the ratio of input and output mentioned in the declaration.

(ii) For the sake of convenience and transparency, input output norms notified under
the Export Import Policy may be accepted by the department unless there are specific
reasons for variation.

(iii) The Deputy/Assistant Commissioner of Central Excise if not satisfied with

reference to the correctness of the consumption norms claimed by the applicant, may
permit the manufacturing operations. The verification of the consumption norms should
be completed while the process of manufacture is on.

(iv) The permission granted by the Deputy/Assistant Commissioner of Central Exci e

can be withdrawn at any time if any glaring misuse resulting into loss of revenue come
to his notice.

(v) Any change in the consumption ratio [input-output ratio] should be promptly
intimated by the manufacturer to the Deputy/Assistant Commissioner of Central Excise
and the jurisdictional Range Superintendent. If necessary, the Deputy/Assistant
Commissioner of Central Excise may order fresh verification. .

E.4 Procurement of material

(i) The manufacturer or processor shall obtain the materials to be utilised in the
manufacture of the finished goods intended for export directly from the registered factory
in which such goods are produced, accompanied by an invoice under rule 11 of the
Rules.

(ii) The manufacturer or processor may also procure materials from dealers registered
for the purposes of the CENV AT Credit Rules, 2001 under invoices issued by such
dealers.

E.5 Removal of materials or partially processed material for processing

(i) The Deputy/Assistant Commissioner of Central Excise may permit a

manufacturer to remove the materials as such or after the said materials have been
partially processed during the course of manufacture or processing of finished goods to a
place outside the factory: -

110
 (a) for the purposes of test, repairs, refining, reconditioning or carrying out
any other operation necessary for the manufacture of the finished goods and
return the same to his factory without payment of duty for further use in the
manufacture of finished goods or without payment of duty in bond for export,
provided that the waste, if any, arising in the' course of such operation is also
returned to the said factory of the manufacturer or processor; or

(b) for the purpose of manufacture of intermediate products necessary for the
manufacture or processing of finished goods and return the said intermediate
products to his factory for further use in the manufacture or process of finished
goods without payment of duty or remove the same, without payment of duty for
export, provided that the waste, if any, arising in the course of such operation is
also returned to the factory of the manufacturer or processor;

(ii) Any waste arising from the processing of materials may be removed on payment
of duty as if such waste is manufactured or processed in the factory of the manufacturer
or processor;

E.6 Procedure for export

(i) The goods shall be exported on the application in specified Form A.R.E. 2 and
the procedure specified in notification No.40/2001-Central Excise (N.T.) dated 26 June.
2001 shall be followed. The procedure specified in the aforementioned notification
relating to removals, distribution of documents at the place of despatch and place of
export, acceptance of proof of export/filing of claim etc. shall be followed mutati
mutandis.

E.7 Claim of rebate

The claim for rebate of duty paid on materials used in the manufacture or
processing of goods shall be lodged only with/the Deputy/Assistant Commissioner of
Central Excise having jurisdiction of the place approved for manufacture or processing
of such export goods. The following documents shall be presented with the claim: -

(i) Original copy of the ARE2 duly endorsed by the Customs Officer;

(ii) Self-attested copy of Shipping Bill (Export Promotion Copy);

(iii) Self-attested copy of Bill of lading/ Air way bill;

(iv) Duplicate copy of the Central Excise Invoice under which Central Excise
duty was paid/accounted as payable on goods cleared for export. [where rebate
of finished goods are also being claimed]; and

(v) Duplicate copy of the ARE.2 received from the Customs officer ill a
sealed cover (if obtained).

E.8 Communication of deficiency in claim

(i) The Deputy/Assistant Commissioner of Central Excise shall point out deficiency,
if any within 15 days of lodging of the claim and ask the exporter to rectify the same

111
 within 15 days. The claim of rebate is to be disposed of within a maximum period of two
months.

(ii) Only a manufacturer or processor of finished goods who exports the goods can
claim benefit of input stage rebate. Benefit of the input stage rebate shall not be
extended where export are through merchant exporters.

E.9 Accounts & Returns

The manufacturer shall maintain register of duty paid materials brought to the
factory for manufacture of finished goods for export under claim for input stage rebate
and the account for finished goods manufactured and exported. The applicant shall also
permit the officer of Central Excise to have an access to any records relating to the
production, storage and export of goods.

E.10 Checks by Customs officers

(i) Samples will invariably be drawn by the Customs officers for testing at the place
of export.

(ii) Customs officer responsible for making endorsement in A.R.E.2 shall carefully
check that exports are not covered under any of the following: -

(a) The Duty Drawback Scheme

(b) A Value Based Advance Licence issued prior to 31 March 1995

(c) A Quantity Based Advance Licence issued prior to 31 March 1995

12.4 Export of excisable goods under bond with~ut payment of duty

12.4.1 Procedure for exports

" (i) The conditions and procedure relating to export without payment of duty (i.e.
duty under the Central Excise Act, 1944, the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957), the Additional Duties of Excise (Textiles
and Textile Articles) Act, 1978 (40 of 1978); and special excise duty collected under a
Finance Act) are contained in Notification Nos. 42/2001-Centra1 Excise .T.) to
45/200 l-Central Excise (N.T.), all dated 26 June, 2001 issued under rule 19 of the
Central Excise (No.2) Rules, 2001 as amended from time to time. The new rule 19
corresponds to rule 13 of the Central Excise Rules, 1944.

(ii) Some important changes have been introduced under the new procedure
(effective from 1 July 2001) which are mentioned below and explained in detail
subsequently: -

(a) The concept of furnishing of a 'Letter of Undertaking' by a manufacturer-

exporter has been introduced. The clearances for export by a manufacturer-
exporter will be effected similar to clearances for home consumption after he
furnishes Letter of Undertaking.

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 (b) The merchant-exporters are required to file 'bond' in specified format. A
manufacturer-exporter may also file bond and follow the 'bond-procedure'
specified in the notification.

(c) Under bond procedure, the concept of 'self-debit' by the exporter has
been introduced. The exporter need not go to the 'bond-accepting authority for a
'debit-certificate' before each removal.

(d) The procedure of 'acceptance of proof of export' has been simplified. The
concept of' Self-credit" based on the copy of A.R.E.l duly certified by Customs
authorities at the place of export is introduced.

(e) In each Commissionerate of Central Excise, there will be an officer

designated as ' Deputy/Assistant Commissioner of Central Excise (Exports)'
whose functions will be similar to the Maritime Commissioners.

(f) Number of copies of 'application for Removal (A.R.E.l)' has been

reduced compared to AR-4. This will be further reduced after completion of
computer networking in the Department enabling 'on-line verification' of
exports.

12.4.2 Categories of exports without payment of duty

A. Export of finished goods to all countries except Nepal and Bhutan

A.I Procedure

Procedures and conditions for export to all countries except Nepal and Bhutan are
specified in notification No. 42/2001-CE (N.T.) dated 26 June 2001. The details are
mentioned below: -

A.2 Conditions

A.2.1 An exporter shall furnish bond in Form B-1 and obtain certificate in Form CT-I.
A manufacturer-exporter may furnish annual Letter of Undertaking. The export shall be
subject to the following conditions: -

(i) The goods shall be exported within six months from the date on which
these were cleared for export from the factory of the production or the
manufacture or warehouse or other approved premises within such extended
period as the Deputy/Assistant Commissioner of Central Excise or Maritime
Commissioner may in any particular case allow;

(ii) When the export is from a place other than registered factory or
warehouse, the excisable goods are in original packed condition and identifiable
as to their origin;

(iii) The exports of mineral oil products falling under Chapter 27 as stores for
consumption on board of an aircraft on foreign run shall be subject to conditions
and limitations, to be applied mutatis mutandis, as notified in the Notification
No.40/2001-Central Excise (N.T.) dated 26 June, 2001 issued under rule 18 of .
the said Rules.

113
A.3 Documents

A.3.1 ARE.1 is the export document for export clearance which shall be prepared in
quintuplicate (S copies). This is similar to the erstwhile AR.4. On A.R.E.1, certain
declarations are required to be given by the exporter.

A.3.2 An invoice shall also be prepared in terms of rule 11 of the said Rules. It should
be prominently mentioned on top "FOR EXPORT WITHOUT PAYMENT OF DUTY".

A.3.3 The Letter of Undertaking is to be furnished by the manufacturer (assessee) in the

Form UT-1 specified in Notification No. 42/2001-Central Excise (N.T.), dated 26 June
2001 only to the jurisdictional Deputy/Assistant Commissioner of Central Excise. A
'Letter of Undertaking' shall be valid for twelve calendar months provided the exporter
complies with the conditions of the Letter of Undertaking.

A.3.4 The obligation of the manufacturer flows from statutory requirement of exporting
the goods within six months or such extended period as the Deputy/Assistant
Commissioner of Central Excise may allow.

A.3.S On repeated failure of the manufacturer-exporter to comply with the conditions of

the Letter of Undertaking or the procedure for 'acceptance of proof of export,' the
Deputy/Assistant Commissioner of Central Excise may direct him in writing that the
letter of undertaking is not valid and he should furnish B-1 Bond with sufficient
security/surety.

A.3.6 The Letter of Undertaking shall not be discharged unless the goods are duly
exported, to the satisfaction of the Deputy/Assistant Commissioner of Central Exci e
within the time allowed for such export.

A.3.7 Though any exporter (Manufacturer-exporter or merchant-exporter) can furni h

bond, the merchant-exporters are necessarily required to furnish bond in the B-1 Form
specified in notification no. 42/200I-Central Excise (N.T.), dated 26 June 2001-~ith
such security or surety as may be specified by the concerned bond accepting authority.
The officer who will accept the bond, will also be responsible for discharging that bond
upon furnishing proof of export by the exporter.

A.3.8 The bond shall not be discharged unless the goods are duly exported.

A.3.9 Certificate "CT-I", as specified have to be obtained by merchant-exporters for

procuring goods from a factory or warehouse.

A.4 Bond Accepting Authority

Bond may be accepted by any of the following officers: -

• The Deputy/Assistant Commissioner of Central Excise having jurisdiction

over the factory or warehouse or any other premises approved by the
Commissioner for storing non-duty paid goods;

• Maritime Commissioners at Mumbai, Chennai, Kolkata, Paradeep, Kandla,

Tuticorin, Visakhapatnam and Cochin.

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 • The Deputy/Assistant Commissioners of Central Excise (Export) as officers
authorised by the Board for this purpose.

A.S. Security or surety with bond

A.S.1 Wherever bond is taken, sufficient security or surety is also required as per the
notifications issued under rule 19 of the said Rules. In 1996, Board had taken a decision
that in respect of exporters having good track record may be allowed to furnish bond
with nil security or surety. The Board in Circular No.2841118/96 dated 31 December
1996 issued instructions in this regard. The Board has decided that security (Bank
Guarantee or Cash Guarantee or Cash Security) or surety need not be insisted upon from
Super Star Trading Houses, Star Trading Houses, Trading Houses and Export Houses
provided
that: -

(i) the exporter has not come to adverse notice of the Central Excise or
Customs Department in last three years from the date under consideration;

(ii) all the formalities required under Central Excise Act and Rules made
thereunder are regularly complied with by the exporter, especially regarding
timely submission of proof of export and deposit of duty with interest in time
where proof of export is not received within stipulated time frame; and

(iii) a self-attested copy of the proof of Status (Super Star Trading Houses,
Star Trading Houses, Trading Houses and Export Houses) from concerned
authority (Ministry of Commerce and Industry - Directorate General of Foreign
Trade) is submitted.

A.S.2 Other exporters shall be required to furnish surety equal to full bond amount or
security equal to twenty five percent. (2S%) of the bond amount, along with the bond.

A.S.3 The bond shall be furnished on non-judicial stamp paper of the value as
applicable in the State in which bond is being furnished.

A.S.4 Where export is effected by merchant-exporter, the bond has to be necessarily

furnished. It is open for the manufacturer to furnish bond on behalf of the merchant-
exporter.

A.5.S Only General bond (B-1) has been specified. The exporter may get the bond
redeemed immediately after he completes the exports and obtains the proof of export.

A.S.6 In case of B-1 general bond a running bond account shall be maintained by the
exporter,

A.S.7 The concept of 'Block Transfer' has lost its relevance in the context of self-debit
and self-credit of bond.

A.5.8 Where the merchant exporter executes bond, it shall be necessary that both the
merchant-exporter and the manufacturer sign the ARE. 1.

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A.6. Procedure for clearance from the factory or warehouse

A.6.1 A Manufacturer-exporter who has furnished a Letter of Undertaking will prepare

the export documents (A.R.E.l and invoice under rule 11) for clearance from his factory
of production.

A.6.2 A Merchant-exporter who has furnished a bond shall be provided sufficient

number of certificates (CT -1), duly signed/certified, in multiples of 25 copies. The
'bond accepting authority' shall be responsible for verifying and accepting the proof of
export.

(i) The second part of CT -1 is very important. The exporter shall determine the
description of goods for procurement from a particular factory or warehouse quantum,
value of procurement (provisional figures) and duty involved therein (provisional figures
- but based on correct rate of duty and contracted transaction value). This 'duty' element
will be debited provisionally. The provisional debit shall be converted into final debit
within a period of seven days form the date of removal of goods.

(ii) The manufacturer shall record the clearance in his Daily Stock Account
indicating, inter alia, the invoice number/date, A.R.E.1 number/date and duty payable but
foregone under rule 19.

(iii) The exporter has two optional procedures regarding the manner in which he may
clear the export consignments from the factory or warehouse or any other approved
premises, namely: -

• Examination and sealing of goods at the place of despatch by a Central Exci e

Officer

• Under self-sealing and self-certification

A.7 Distribution of ARE.1 in the case of export from the factory or warehouse

(i) Original (First Copy) Shall return to the exporter immediately after
endorsement and signature
(ii) Duplicate (Second Copy) The said Superintendent or Inspector of Central
Excise shall return to the exporter immediately
after endorsement and signature.
(iii) Triplicate (Third Copy) Shall send to the bond sanctioning authority,
either by post or by handing over to the exporter
in a tamper proof sealed cover after posting the
particulars in official records.
(iv) Quadruplicate (Fourth Copy) Retain for official records
(v) Quintuplicate (Fifth Copy) Optional copy - Shall return to the exporter
immediately after endorsement and signature.

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A.8 Distribution of ARE.I in the case of export from other than factory or
warehouse

Where goods are not exported directly from the factory of manufacture or
warehouse, the distribution of A.R.E.I will be same as above except that the triplicate
copy of application shall be sent by the Superintendent having jurisdiction over the
factory of manufacture or warehouse who shall, after verification forward the triplicate
copy in the manner specified above.

A.9 Despatch of goods by self-sealing and self-certification

Self-sealing and self-certification is a procedure by which the exporter who is a

manufacturer or owner of a warehouse, may remove the goods for export from his
factory or warehouse without examination by a Central Excise Officer. This procedure
will also be permitted in the cases where a merchant-exporter procures the goods direct!
from a factory or warehouse. In both cases, the manufacturer of the export goods or
owner of the warehouse shall take the responsibility of sealing and certification. The
exporter shall distribute copies of A.R.E. 1 in the following manner: -

(i) Original (First copy) and Duplicate (Second copy) - will be sent to the place of
export alongwith the goods;

(ii) Triplicate (Third copy) and Quadruplicate (Fourth copy) - will be sent to
Superintendent or Inspector of Central Excise having jurisdiction over the factor or
warehouse within twenty four hours of removal of the goods; and

(iii) Quintuplicate (Fifth copy) - which is an Optional copy will also be sent to the
place of export along with the goods.

A9.2 The Superintendent or Inspector of Central Excise shall verify the particular of
assessment, the correctness of the amount of duty paid or duty payable, its entry in the
Daily Stock Account and corresponding invoice issued under rule 11. If he is satisfied
with the particulars, he will endorse the relevant AR.E. 1. In case of any discrepancy he
will take up the matter with the assessee for rectification after verification is complete.
He will send triplicate (Third copy) to the bond accepting authority, either by post or b .
handing over to the exporter in a tamper proof sealed cover after posting the particulars
in official records; and retain quadruplicate (Fourth copy) for Range records.

A.I0 Export by parcel post

In case of export by parcel post after the goods intended for export has been
sealed, the exporter shall affix to the duplicate application sufficient postage stamps to
cover postal charges and shall present the documents, together with the package or
packages to which it refers, to the postmaster at the Office of booking.

[Link] Examination of goods at the place of export

AII.I The place of export may be a Port, Airport, Inland Container Depot, Customs
Freight Station or Land Customs Station.

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[Link].2 The exporter shall present together with original, duplicate and quintuplicate
(optional) copies of the application (A.R.E. l) to the Commissioner of Customs or other
duly appointed officer - normally goods are presented in the designated export shed.

A.l1.3 The goods are examined by the Customs for the purposes of Central Excise to
establish the identity and quantity, i.e. the goods brought in the Customs area for export
on an A.R.E. 1 are the same which were cleared from the factory.

A.l1.4 For Central Excise purposes, the Officers of Customs at the place of export shall
examine the consignments with the particulars as cited in the application (A.R.E. 1) and
shall allow export thereof. Thereafter, he will certify on the copies of the A.R.E. 1 that
the goods have been duly exported and distribute in the following manner:

(i) The officer of Customs shall return the original and quintuplicate
(optional copy for exporter) copies of application to the exporter and forward the
duplicate copy of application either by post or by handing over to the exporter in
a tamper proof sealed cover to the officer specified in the application, from whom
exporter wants to claim rebate.

(ii) Quintuplicate A.R.E. 1 is the Export Promotion Copy and the exporter
shall use this copy for purposes of claiming any other export incentive.

A.12 Procedure relating to proof of export and re-credit against such proof

A.l2.l The original and duplicate copies of A.R.E. 1 are presented to the Customs
authorities at the place of export [with option for exporter to also present quintuplicate
copy]. The Customs authority certify the actual export on these documents and
distribute the copies as specified.

A. 12.2 The exporter shall submit a Statement, at least once in a month, in specified Form
along with the Original copies of A.R.E. 1 with due certification of export (Pass for
Shipment Order) by Customs authorities at the place of export to the Divisional office
(through Range) or in the office of the bond-accepting authority.

A.12.3 The exporter is permitted to take credit in his running bond account on the basis
of copy of the Statement referred to above, duly acknowledged by the Range office or
the office of the bond-accepting authority.

A.l2.4 It shall be the responsibility of the Range Office and Division Office or the other
bond-accepting authority to verify the correctness of Statement and A.R.E.1 furnished by
the exporter within 15 days of the receipt.

A.12.5 In case of non-export within six month from the date of clearance for export (or
such extended period, if any, as may be permitted by the Deputy/Assistant
Commissioner of Central Excise or the bond-accepting authority) or discrepancy, the
exporter shall himself deposit the excise duties along with interest on his own
immediately on completion of the statutory time period or within ten days of the
Memorandum given to him by the Range/Divisional office or the Office of the bond-
accepting authority, from the manufacturer-exporter along with interest in terms of the
Letter of Undertaking or bond.

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A.12.6 In case of any loss of document, the Divisional Officer or the bond accepting
authority may get the matter verified from the Customs authorities at the place of export.

A.13 Functioning of Deputy/Assistant Commissioner of Central Excise (Export)

A.13.1 Under the normal export procedure, the merchant-exporters including those
manufacturer-exporters (Project-exporters who have to export bought out goods) have to
procure the excisable goods for export under bond manufactured in different parts of the
country and have to furnish either several bonds with the Deputy/Assistant
Commissioner of Central Excise of the supplier's area and submit proof of exports for
discharge of such bonds or furnish a bond with the Maritime Commissioner who are
located only at seven ports. The Board had appointed an officer in each
Commissionerate except those Commissionerates in which the Maritime Commissioner
is posted as Deputy/Assistant Commissioner of Central Excise (Export) for the purpo e
of facilitating export under bond (Circular No. 500/66/99-CX dated 15 December, 1999,
under authority of rule 19 of the said Rules read with notification No.421200 I-Central
Excise (N.T) dated 26 June 2001).

A.13.2 Any merchant exporter/manufacturer-cum-merchant exporter can file the

required bond with the Deputy/Assistant Commissioner of Central Excise (Export) under
whose jurisdiction his Head Office/factory is located (within the jurisdiction of the
Commissionerates). In such a case the exporter can procure the goods from a factory
located anywhere in India.

A.13.3 The Deputy/Assistant Commissioner of Central Excise (Export) will not deal
with the exports where the manufacturer-exporters are permitted to export by furnishing
an Annual Undertaking (UT-I) in lieu of bond.

B. Export to Nepal and Bhutan without payment of duty

B.1 Introduction

The Board in Notification No. 45/2001-Central Excise (N.T.) dated 26 June

2001 (hereinafter referred to as the 'said notification') has specified the conditions and
procedure for export to Nepal and Bhutan without payment of duty (under bond).

B.2 Places from where goods can be exported

Under the said notification, export can be made from any of the following
places: -

(i) the factory of production or manufacture

(ii) warehouse, or

(iii) any other premises as may be approved by the Commissioner of Central

Excise.

B.3 Forms to be used

B.3.1 The exporter shall be required to file a general bond in the Form specified in the
said notification with such security or surety as may be specified by the concerned bond

119
accepting authority. The officer who will accept the bond, will also be responsible for
discharging that bond upon furnishing proof of export by the exporter.

B.3.2 The bond shall not be discharged unless the goods are duly exported, to the
satisfaction of the Deputy! Assistant Commissioner of Central Excise or Maritime
Commissioner.

B.3.3 Six copies of invoices specified in the Form shall be prepared. On the invoice,
certain declarations are required to be given by the exporter.

B.3.4 A Certificate shall be required in the Form specified in the said notification from
the Reserve Bank of India or any other bank authorised to deal in foreign exchange by
the Reserve Bank of India, for the receipt of full payment in freely convertible currency.
Certificate may also be required where remittance is received in Indian Rupee.

B.4 Categories of exports and the conditions and safeguards thereto

B.4.1 Export under bond to Nepal or Bhutan where payment is in freely

convertible currency

(i) Export under bond to Nepal or Bhutan where payment is in freely convertible
currency, shall be subject to following conditions, namely: -

(a) The importer in Nepal or Bhutan, as the case may be, shall open an irrevocable
letter of credit in favour of the exporter in India, before the export takes place. However.
this is not necessary in the following cases of export: -

~ All excisable goods other than consumer goods; and

~ Motor vehicle,

if they are exported without payment of duty as: -

~ supplies to projects financed by any United Nations agency, the International

Bank for Reconstruction and Development, International Development
[Link] Asian Development Bank or any other multilateral agency of
like nature; and

~ to all diplomatic missions in Nepal or Bhutan provided the Indian Embassy or

the Ministry of External Affairs certifies that the import is for the personnel
of the diplomatic community;

(b) The exporter shall furnish a bond in Form specified in Annexure-I of the above-
mentioned notification before the Deputy! Assistant Commissioner of Central
Excise having jurisdiction over the factory, warehouse, or the approved premises
or such other officer as authorised by the Board on this behalf, from where the
goods are removed for export to Nepal or Bhutan, as the case may be;

(c) After the exports are effected the exporter shall furnish a certificate of
remittances from the Reserve Bank of India or an authorised bank in India,
showing that full payment for the goods has been duly received in freely
convertible currency.

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 B.4.2 Export to Nepal in bond against payment in Indian rupee

. (i) As an exception to the above category of export, Capital goods, as defined in the
said notification may be exported under bond directly from the factory of manufacture to
Nepal against any global tender invited by His Majesty's Government of Nepal without
payment of duty, for which payment is received in Indian currency. Such exports shall
be subject to the following further conditions, namely: -

(a) the exporter shall furnish a bond in specified Form before the
Deputy/Assistant Commissioner of Central Excise or such other officer as
authorised by the Board on this behalf; and

(b) the exporter shall furnish a certificate of remittances in specified Form

from a bank in India showing that full payment for the goods has been duly
received in Indian currency by the said bank.

(ii) On receipt of the certificate of remittances and on the satisfaction that the goods
have been exported in terms of bond, the bond accepting authority shall discharge the
exporter of his liabilities under the bond.

B.4.3 Export in bond of petroleum oil and lubricant products to Nepal

The export in bond without payment of duty of excise of petroleum oil and
lubricant products to Nepal is permitted through the agency of Nepal Oil Corporation
from calibrated stocks of M/s Indian Oil Corporation registered as a warehouse in
accordance with the provisions in rule 20 of the said Rules, and situated at places
notified for the purpose or purchase without payment of duty from tanks of other Oil
Companies or Undertakings. For this facility, the Indian Oil Corporation shall be'
required to furnish a bond in the specified Form to the Jurisdictional Deputy/Assistant
Commissioner of Central Excise.

B.S Export Procedure

B.S.l Procedure at the place of despatch

(i) Six copies of invoice shall be presented to the Superintendent or Inspector of

Central Excise having jurisdiction over the factory, warehouse or any other approved
premises along with the export goods.

(ii) In case of export for supplies to Government of India aided projects in Nepal and
the Embassy Co-operative Store and Embassy Petrol Pump located in Nepal for the
bonafide use of officers and staff of the Embassy in Nepal, the order from Project
Implementation Authority shall also be presented.

(iii) The Superintendent or Inspector of Central Excise having jurisdiction over the
factory, warehouse or any other approved premises shall verify the identity of goods.

(iv) The said Superintendent or Inspector will allow export and distribute invoices in
the following manner:

(a) Original (First copy) will be handed over to the exporter.

121
(b) Duplicate, triplicate and quadruplicate (second, third and fourth copies) will be
handed over to the exporter or his agent in a sealed cover for delivery to the
Customs officer in-charge of the Land Customs Station through which the goods
are intended to be exported.

(c) Quintuplicate copy (Fifth copy) will be forwarded to the Deputy/Assistant

Commissioner of Central Excise who has accepted the bond.

(d) Sixtuplicate (Sixth copy) will be retained for official record.

(v) The exporter or his agent shall then be free to remove the goods for export to
Nepal through the Land Customs Station indicated on the respective invoices;

(vi) Where the goods are exported by land, the export shall take place through any of
the notified land Customs stations.

B.S.2 Procedure at the Land Customs Station

(i) The exporter or his agent shall present the goods to the officer of Customs in-
charge of the land Customs station along with the documents.·

(ii) Where the contents of all the copies of invoices tally and the packages, goods or
container are satisfactorily identified with their seals intact, the officer of Customs in-
charge of the land Customs station shall make necessary entries in the register
maintained at the land Customs station and allow the goods to cross into the territory of
Nepal or Bhutan and certify accordingly on each of the four copies of the invoice.

B.S.3 Distribution of invoices by Customs Officer

(i) Original (First copy) will be handed over to the exporter or his agent alongwith
the goods for presentation to the Customs Officer of Nepal or Bhutan.

(ii) Duplicate and triplicate (Second and third copy) will be sent to the epalese or
Bhutanese Customs Officer in-charge of the check post through which the goods are to
be imported into Nepal or Bhutan, as the case may be.

B.S.4 Presentation of goods to Nepalese or Bhutanese Customs Officers: The goods

are then to be produced before the Nepalese or Bhutanese Customs Officer, as the case
may be, at the corresponding border check-post alongwith the original copies of the
invoice. The Nepalese or Bhutanese Customs Officer shall deal with the original and
triplicate copies of the invoice as directed by His Majesty's Government of Nepal or His
Majesty's Government of Bhutan and return the duplicate copy, after endorsing his
certificate 'of receipt of goods in Nepal or Bhutan, as the case may be, directly to the
officer of Customs-in-charge of the land Customs station in India;

B.S.S Further distribution of invoices: The officer of Customs in-charge of the land
Customs station shall forward the duplicate copy to the Central Excise Officer in charge
of the factory or warehouse from which the goods were removed for export without
payment of duty. For this purpose, the said officer in charge of the land Customs station
shall keep a note of the return of duplicate copies from the Customs Officer of Nepal or
Bhutan and remind the exporter for such copies as have not been received, failing which
the exporter may be liable to pay full duty on such consignments;

122
 The officer of Customs office, at the land Customs station shall also maintain a
separate record of all such in-bond exports of the goods without payment of duty and
shall assign running serial number on the invoice at the time of export as indicated
earlier;

B.6 Procedure for discharge of bond or the duty liability

(i) The exporter shall submit the quadruplicate copy duly endorsed by the officer of
Customs in-charge of land Customs station to the Central Excise officer who has
accepted the bond alongwith bank, certificate evidencing receipt of payment in freely
convertible currency (in Indian Rupee in particular category), within six months from the
date of removal of the goods.

(ii) The Central Excise officer will tally the particulars with quintuplicate copy of the
invoice received from the Central Excise officer who has allowed clearance from the
factory or warehouse or any other approved premises and make suitable entries in Bond
Account of the exporter, giving provisional credit or discharging the bond provisionally.

(iii) On receipt of the duplicate copy of invoice, duly endorsed by Customs officer of
Nepal or Bhutan from the Customs officer in charge of land Customs station, certifying
export of the goods and after tallying the particulars with those in quadruplicate copy of
the invoice make suitable entries in Bond Account and the obligation under the said bond
will then be discharged.

(iv) In case of failure to export within six months from the date of removal from the
factory or warehouse or any other approved premises, or shortages noticed, the exporter
shall discharge the duty liability on the goods not so exported or shortage noticed along
with interest at the prescribed rate thereon from the date of removal for export without
payment of duty till the date of payment of duty in terms of the bond.

12.5 Simplified export procedure for exempted units

12.5.1 Introduction

Units which are fully exempted from payment of duty by a notification granting
exemption based on value of clearances for home consumption, may be exempted from
filing ARE.l and Bond till they remain within the full exemption limit. The following
simplified export procedure shall be followed in this regard by such units: -

12.5.2 Filing of declaration

Manufacturers exempted for payment of duty will not be required to take Central
Excise Registration. They shall however, file a declaration in terms of Para 2 of
Notification No. 36/2001-CE (NT) dated 26 June 2001, and obtain declarant code
number [notwithstanding they are exempted from declaration, but for this procedure].

12.5.3 Documentation

(i) The clearance document will be, as follows: -

(a) Such manufacturers are permitted t<? use preauthenticated invoices or

other similar documents for the purpose of clearances of goods for home

123
 consumption as well as for exports. The invoices meant for use during a month
shall be pre-authenticated by the owner or partner or Director/Managing Director
of a Company or other authorised person.

(b) The declarant's Code Number should be mentioned on all clearance

document.

(c) Such clearance document should contain particulars of the description of

goods, name and- address of the buyer, destination, value, [progressive total of
total value of excisable goods cleared for home consumption since beginning of
the financial year], vehicle number, date and time of the removal of the goods.

(d) The clearance document will be signed by the manufacturer or his

authorised agent at the time of clearance.

(e) In case of export through merchant exporters, the manufacturer will also
mention on the top "EXPORT THROUGH MERCHANT EXPORTERS" and
will mention the Export-Import Code No. of such merchant exporters.

(f) In case of direct export by the manufacturer-exporters, he will mention on

the top "FOR EXPORT" and his own Export - Import Code No., if any.

(ii) Records

Such units shall maintain a simple record of quantity and value of production and
clearance. Entries in production record should either be allowed to be made at the close
of the day or before the commencement of the production on the following day. Entries
need not be made on days when there is no production or clearance of goods.

(iii) Statement

Such units shall file a prescribed quarterly statement to the Jurisdictional Range
Superintendent containing various particulars.

12.5.4 Proof of Export

(i) In the case of direct export by the Manufacturer exporter following documents
shall be accepted as proof of export: -

(a) Duly attested photocopy of shipping bill (Export Promotion Copy)

bearing the particulars and date of clearance document under which the goods are
cleared from the factory of production, having endorsement" on its reverse by the
Customs of the particulars of Mate's receipt no. (wherever applicable), name of
the ship/ flight no. of the aircraft, vehicle no. - by which the goods were exported
out, date of export, and EGM Number/Airway Bill Number (wherever
applicable );

(b) Custom's attested copy of Bill of lading; and

(c) Foreign Exchange Remittance Certificates.

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(ii) In the case of export through Merchant-exporter the document prescribed by
Sales Tax Department will be accepted as the proof of export. Sales made by
manufacturer of the goods to the Merchant exporter which ultimately are exported are
exempt from Central Sales Tax. The Sales Tax department issues booklet to the
Merchant exporters containing serially numbered H-Forms/ST-XXII form or equivalent
Sales Tax Form. After the goods have been exported by the merchant exporters, the
latter issues these Forms to the manufacturers of the goods. The merchant exporters in
turn have to submit account for all these serially numbered Forms to the Sales Tax
department by furnishing a proof that the goods have been exported out. These proofs
are in the form of presentation of the Shipping Bill duly completed by the Customs, bill
of landing, foreign exchange remittance certificates etc. The liability of the
manufacturers to the Central Sales Tax gets discharged only when they submit these
Forms to the Sales Tax department. It is, therefore, seen that indirectly exports get
accounted for through the issue of H-Form or ST-XXII Form. Thus, photocopy of H-
Form or ST-XXII Form or any other equivalent Sales Tax Form duly attested and
stamped by the manufacturer or his authorised agent can be accepted for purpose of
proof of export.

12.5.5 Submission of proof of export and processing thereof

(i) The proof of export by manufacturer exporter should be submitted to the Range
Officer within a period of 6 months from the date of clearance of goods from the factory
of production.

(ii) If Range Superintendent finds that the clearances for home consumption, and the
clearances for export where proof of exports have not been furnished within 6 months.
when taken together, are likely to exceed the exemption limit (which is presently R .100
lakh for home consumption), he should issue show cause notices for safeguarding
revenue.
"'"-!..'

(iii) The Range Superintendent will maintain manufacturer wise record on the basis of
the quarterly return and the proof of exports submitted by the manufacturer from time to
time:

(iv) In case clearances of such manufacturers for home consumption plus clearance
for export where proof of export were not furnished within 6 months, exceed the
exemption limit, they should take Central Excise Registration and follow the regular
A.R.E.1 procedure.

(v) This procedure will also be applicable to exports of ready-made garments.

12.6 . Manufacture of export goods in bond

12.6.1 Introduction

(i) The Board has, by Notification No. 43/2001-Central Excise (N.T.) dated 26 June
2001 notified the conditions, safeguards and procedures for procurement of the excisable
inputs without payment of duty for the purpose of use in the manufacture or processing
of export goods and their exportation out of India, to any country except Nepal and
Bhutan.

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(ii) In terms of rule 19 of the Central Excise Rules and the said notification, the
benefit of input stage rebate can be claimed on export of all finished goods whether
excisable or not.

(iii) The materials, as defined in the said rule 19 may be used for manufacture or
processing. Any process not amounting to manufacture (such as packing, blending etc.)
will also be eligible for the benefit under said notification.

(iv) Removal without payment of duty of equipment and machinery in the nature of
Capital goods used in relation to manufacture or process of finished goods shall not be
allowed.

12.6.2 Conditions and procedures

(i) The Conditions

The conditions and procedure for manufacture of export goods in bond shall be.
as follows: -

(a) The manufacturer or the processor intending to avail benefit of this notification
shall register himself under rule 9.

(b) The procedure specified in the Central Excise (Removal of Goods at

Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 shall be
followed, mutatis mutandis. There is no separate exemption notification for applying
this rule.

(c) The manufacturer or processor shall file a declaration with the Deputy/Assistant
Commissioner of Central Excise having jurisdiction over the factory of manufacture
under the Central Excise (Removal of Goods at Concessional Rate of Duty for
Manufacture of Excisable Goods) Rules, 2001, and also declare ratio of input and output
and rate of duty payable on excisable goods to be procured without payment of duty.

(ii) Verification of Input-output ratio and grant of permission

(a) The Deputy/Assistant Commissioner of Central Excise shall verify the

correctness of the ratio of input and output mentioned in the declaration grant permission
to the applicant for manufacture or processing and export of finished goods and
countersign the application.

(b) The input output norms notified under the Export Import Policy may be accepted
by the department unless there are specific reasons for variation.

(iii) If for any reason the Deputy/Assistant Commissioner of Central Excise is not
satisfied with reference to the correctness of the consumption norms claimed by the
applicant, he may permit the manufacturing operations subjected to verification of the
consumption norms which should be completed before allowing the export of the goods.

(iv) The permission granted by the Deputy/Assistant Commissioner of Central Excise

can be withdrawn at any time if any glaring misuse resulting into loss of revenue comes
to his notice.

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(v) Any change in the consumption ratio [input-output ratio] should be promptly
intimated by the manufacturer to the Deputy/Assistant Commissioner of Central Excise
and the jurisdictional Range Superintendent giving reference of the permission granted.
If necessary, the Deputy/Assistant Commissioner of Central Excise may order fresh
verification.

12.6.3 Procurement of material

The procedure of procurement of material required for the manufacture shall be

governed by the provisions of the Central Excise (Removal of Goods at Concessional
Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.

12.6.4 Removal of materials or partially processed material for processing

(i) The Deputy/Assistant Commissioner of Central Excise may permit a

manufacturer to remove the materials as such or after the said materials have been
partially processed during the course of manufacture or processing of finished goods to a
place outside the factory:-

(a) for the purposes of test, repairs, refining, reconditioning or carrying out
any other operation necessary/for the manufacture of the finished goods and
return the same to his factory without payment of duty for further use in the
manufacture of finished goods or remove the same without payment of duty irr
bond for export, provided that the waste, if any, arising in the course of such
operation is also returned to the said factory of the manufacturer or processor; or

(b) for the purpose of manufacture of intermediate products necessary for the
manufacture or processing of finished goods and return the said intermediate
products to his factory for further use in the manufacture or process of finished
goods without payment of duty or remove the same, without payment of duty for
export, provided that the waste, if any, arising in the course of such operation is
also returned to the factory of manufacturer or processor; and

(c) any waste arising from the processing of materials may be removed on
payment of duty as if such waste is manufactured or processed in the factory of
the manufacturer or processor.

12.6.5 Procedure for export

(i) The goods shall be exported on the application in Form A.R.E. 2 and the
procedures specified in the Notification No. 42/200 I-Central Excise dated 26 June 2001
shall be followed.

(ii) The Deputy/Assistant Commissioner of Central Excise shall point out deficiency,
if any, within 15 days of filing of A.R.E.l Form duly certified by Customs indicating
actual export.

(iii) The claim for benefit of input stage rebate shall not be extended where exports
are through merchant exporters.

(iv) The benefit of input stage rebate cannot be claimed In any of the following
situations: -

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 (a) where the finished goods are exported under claim for Duty Drawback

(b) where the finished goods are exported in discharge of export obligations
under a Value Based Advance Licence or a Quantity Based Advance Licence
issued before 31 March 1995.

(c) where facility of input stage credit IS availed under CENV AT Credit
Rules, 2001.

12.6.6 Accounts & Returns

(i) The manufacturer shall maintain register of duty free materials brought to the
factory for manufacture of finished goods for export and the account for finished goods
manufactured and exported. The applicant shall also permit the officer of Central Excise
an access to any records relating to the production, storage and export of goods.

(ii) The colour coding of A.R.E.2 will be as follows: -

Original White

Duplicate Buff
Triplicate Pink
Quadruplicate Green
Quintuplicate Blue

12.6.7 Checks by Customs officers

(i) Samples will be invariably drawn by the Customs officers for testing at the place
of export in case the export goods are of sensitive nature considering that they are made
from materials bearing high Central Excise Duty.

(ii) Customs officer responsible for making endorsement on A.R.E.2 shall carefully
check that exports are not covered under any of the following: -

a) The Duty Drawback Scheme

b) A Value Based Advance Licence issued prior to 31 March 1995

c) A Quantity Based Advance Licence issued prior to 31 March 1995

12.6.8 Payment of Rebate

The Deputy/Assistant Commissioner sanctioning rebate shall ensure that the

relevant transport copies (duplicate copies) of duty paying document have been suitably
defaced before payment is made.

12.7 Miscellaneous Export Provisions

.•.
12.7.1 Cancellation of Export documents

i) If the excisable goods cleared under A.R.E.1 are not exported for any reason and
the exporter intends to divert the goods for home consumption, he may request in writing

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to the authority who accepted the bond or letter of undertaking to allow cancellation of
application, and diversion of goods for consumption in India. He will be permitted to do
so if he pays the duty as specified in the application along with interest at the prescribed
rate on such duty from the date of removal for export from the factory or warehouse till
the date of payment of duty. After the duty is discharged, the exporter may take credit in
his running bond (where bond is furnished) on the basis of letter of permission, invoice
and TR-6 Challans on which duty is paid. He shall record these facts in the Daily Stock
Account.

(ii) If the exporter, after clearing the goods for export without payment of duty,
intends to change the destination or buyer or port/place of export, or he intends to cancel
the original export documents and issue fresh ones, the same may be done under
permission and authentication by bond/Letter of Undertaking accepting authority who
will ensure that the serial no. and date of the initial documents are endorsed on the fresh
documents. In such cases, if bond was furnished for single consignment, fresh bond may
not be asked for.

12.7.2 Re-entry of the goods, cleared for export under bond but not actually
exported, in the factory of manufacture.

(i) The excisable goods cleared for export under bond or letter of undertaking but
not actually exported for any genuine reasons may be returned to the same factory
provided:-

(a) such goods are returned to the factory within SIX months along with
original documents (invoice and A.R.E.1);

(b) the assessee shall give intimation of the re-entry of each consignment in
Form D-3 within twenty-four hours of such re-entry;

(c) such goods are to be stored separately at least for 48 hours from the time
intimation is furnished to Range Office or shorter period if verification is done by
the Superintendent of Central Excise in the manner mentioned subsequently; and

(d) the assessee shall record details of such goods in the daily stock account
and taken in the stock in the factory;

(ii) The Superintendent of Central Excise will verify himself or through Inspector in-
charge of the factory, about the identity of such goods with reference to invoice, A.R.E.}
and the daily stock account in respect of 5% of intimations, within another 24 hours of
receipt of intimation.

12.7.3 Re-import of exported goods for repairs etc. and subsequent re-export

(i) Notification 4212001-Central Excise (N.T.), dated 26 June 2001 provides that the
exported excisable goods which are re-imported for carrying out repairs, re-conditioning,
refining, re-making or subject to any similar process may be returned to the factory of
manufacture for carrying out the said processes and subsequent re-export. The 're-
import and re-export' shall be governed by the provisions of the Customs Act, 1962.

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(ii) The manufacturer shall maintain separate account for return of such goods in a
daily stock account and make suitable entry on the said account after goods are
processed, repaired, re-conditioned, refined or re-made. When such goods are exported,
the usual export procedure shall be followed.

(iii) Any waste or refuse arising as a result of the said processes shall be removed
from the factory on payment of appropriate duty or destroyed after observing such
conditions and procedure as may be specified by the Commissioner of Central Excise
and payment of duty payable on such waste or refuse.

12.7.4 Entry of goods in another factory of the same manufacturer for

consolidation and loading of consignment for export:

Goods removed without payment of duty for export on A.R.E.l from one factory
(hereinafter referred to as 'the first factory') of a manufacturer are allowed to enter in
another factory of the said manufacturer (hereinafter referred to as the 'subsequent
factory') only for the purpose of consolidation and loading of goods manufactured in
subsequent factory and export therefrom subject to following conditions: -

(a) The exporter shall be required to get his goods examined and sealed at each
factory [the places of despatch] by a Central Excise Officer.

(b) The export goods shall be brought under cover of an invoice and A.R.E.l in the
subsequent factory in original packing and duly sealed by Central Excise Officers. The
Central Excise Officer having jurisdiction over the subsequent factory shall supervise the
opening of the seal of container, loading of goods (duly sealed if these goods are to be
loaded in open truck/vehicle) belonging to the subsequent factory in vehicle or container
and sealing of the container.

(c) The exporter or the manufacturer shall pay the supervision charges.

12.7.5 Samples of export goods

The Central Excise Officer examining the consignment will draw representative
samples wherever necessary in triplicate. He will hand over two sets of samples, duly
sealed, to the exporter or his authorized agent, for delivering to the Customs Officer at
the point of export and will retain the third set for his records. The instructions and
procedure for drawal of samples specified by the Board shall be followed.

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 CHAPTER-13

SPECIAL SCHEMESIPROCEDURES FOR PAYMENT OF EXCISE DUTY ON

SPECIFIED PRODUCTS

As per provisions of rule 15 of the Central Excise Rules, 200112002, the Central
Government may, by notification, specify the goods in respect of which an assessee shall
have the option to pay the duty of excise on basis of such factors as may be relevant to
production of such goods at such rate as may be notified for this purpose, subject to such
limitations and conditions including those relating to interest or penalty and also the
manner of making an application for availing of the special procedure for payment of
duty. Some of the scheme/procedures notified in this regard and in force are discussed: -

13.1 ~xcise....::1 on readymade garments

13.1.1 Introduction

The scheme of excise duty in respect of readymade garments has been modified
from 1 May 200 1. Notification Nos. 16/200 l-Central Excise (NT), 18/200 I-Central
Excises (NT) to 2112001-Central Excise (NT), 211200 I-Central Excise to 23/2001-
Central Excise, all dated 30 April 2001, have been issued in this regard.

13.1.2 The Scheme from 1 May 2001

(i) Excise duty at the rate of 16 per cent apply to all garments falling under Chapter
62 of the Central Excise Tariff. However, clothing accessories including handkerchiefs,
shawls, scarves, mufflers, mantillas, veils, ties, bow ties, cravats, gloves falling under
heading No.62.02 have been exempted from excise duty. Exemption from excise duty
has also been provided to raincoats and undergarments. Notification No.211200 l-Central
Excises has been issued in this regard. The exemption is made effective from 1 May
200l.

(ii) The readymade garments, particularly those bearing brand names, are
manufactured in a big way through job workers. Stitching and other ancillary activities
are entrusted to different job workers, sometimes smaller ones. In the case of garments
manufactured on job-work basis, the liability to pay the excise duty shall be on the
person who gets the goods manufactured on his own account from the job-workers
(called merchant manufacturer in common excise parlance) and not on the job-workers.
An exception has been provided in rule 4 for this purpose. The duty liability has to be
discharged by the merchant manufacturer as if the garments have been manufactured by
him on his own.

(iii) The merchant manufacturer has to get himself registered under erstwhile rule 174
(Rule 9 of new rules) and the premises for registration will be the private store room or
warehouse.

(iv) Tne. duty liability will be discharged by the merchant manufacturer at the time of
removal of garments from his registered. premises and all the provisions of the Central
Excise Rules shall apply to such merchant manufacturer.
(v) The Central Excise Rules have been amended to provide for the facility in case
such merchant manufacturer of garments would like to authorize any job worker to pay
the excise duty on his behalf and the job worker so authorized undertakes to discharge
the duty liability and comply with all the formalities required under the Central Excise
Rules.

(vi) The benefit of excise duty exemption scheme based on value of clearance during
the financial year has been extended to readymade garments. The exemption limit of
Rs.l crore applies to a "manufacturer" as such. Thus, the clearances by or on behalf of a
manufacturer from different factories or job-works, as the case may be, shall be clubbed
together. The clearances of one factory, if run by different manufacturers, shall be
clubbed together for the purpose of computing limit of Rs.l crore. The export clearance
shall not be added in the limit of Rs.l crore.

(vii) A garment manufacturer who manufactures the goods on his own account in his
factory shall be eligible to take credit of the actual duty paid on the inputs and capital
goods in terms of the provisions of the Cenvat Rules. A merchant manufacturer who
gets the goods manufactured on his own account from a job worker and discharges the
duty liability himself shall also be eligible to take the actual credit of the duty paid on
inputs supplied to the job worker. The Cenvat Credit Rules have been suitably amended
for this purpose.

(viii) Provision has also been made for "deemed credit" in case it is not feasible to take
the actual credit of the duty paid on inputs. The deemed credit shall be equal to 20 per
cent of the excise duty payable on garment and can be claimed at the time of removal of
the garments (facility of deemed credit has been withdrawn from 1 April 2003 vide
notification NO.812003 CE (NT) dated 1 March 2003).

(ix) The manufacturer of garments who manufactures in his factory on his own
account, the merchant manufacturer in respect of the premises where fully manufactured
garments are procured from job workers and the job worker who is authorized to pay the
excise duty by the merchant manufacturer is required to obtain the registration under rule
9 of the Central Excise Rules. All other job workers are exempted from obtaining
registration vide notification No.18/200 l-CE (NT).

(x) Tariff value for garments has been fixed under notification No.20/2001-Central
Excise (NT) dated 30 April 2001, as amended vide notification No.7/2002 CE (NT)
dated 1 March 2002. The tariff value shall be 60 per cent of the retail price in respect of
the garments. By virtue of the provisions of Standards of Weights and Measures Act,
1976, the person who is required to pay duty on readymade garments shall indicate the
MRP of the garments on the invoices so that the duty liability is correctly ascertainable.

(xi) Where the garment manufacturer is exporting a substantial part of his production
and his clearance for home consumption does not exceed the full exemption limit of Rs.l
crore under notification no.8/200 I-CE dated I March 2001, he is eligible to the benefit
of simplified procedure for exports contained in Board's circular No.212/46/95-CX.
(Issued from [Link].209118/96-CX.6) dated 20 May 1996 read with notification No.22/98-
CE (NT) dated 4 June 1998, as amended. Thus, he is not required to take central excise
registration or follow the usual procedure of AR 4/ERI in respect of exports.

(Authority Ministry of Finance's letter [Link].B4/5/200J TRU dated 30 April200J)

132
13.1.3 Changes from 1 March 2002

(i) The Central Excise duty on readymade garments of Chapter 62 and made up
articles of Chapter 63 has been reduced from 16 per cent to 12 per cent ad
valorem.

(ii) In the case of knitted or crocheted garments of Chapter 61, an optional levy of 12
per cent ad valorem has been imposed. If the manufacturer of such garments
wants to avail the Cenvat credit of duty paid on inputs or capital goods, then he
would be required to pay duty at 12 per cent ad valorem. In case he does not
wish to avail the Cenvat credit, he is not required to pay any duty (Refer
Notification Nos.15/2002 CE, 712002 CE (NT) and 8/2002 CE (NT) all dated 1
March 2002).

13.1.4 Changes from 1 March 200311 April 2003

(i) Excise duty on all woven (including cotton) garments and made ups has been
reduced from 12% to 10%;

(ii) Duty on cotton knitted garments has been reduced 'to 8 per cent and on other
knitted garments to 10 per cent;

(iii) The option to avail of exemption on knitted/crocheted fabrics has been

withdrawn;

(iv) The following exemptions have been withdrawn from 1 April 2003: -

(a) Raincoats, undergarments and clothing accessories like handkerchief, ties

and gloves. The goods are now covered under SSI exemption.
(b) Textile articles made from handloom fabrics (SSI exemption is available).
(c) SSI exemption on ready made garments has been withdrawn.
However first clearance of branded readymade garments upto a value not
exceeding Rs.25 lakh allowed (increased to Rs.30 lakh).
(d) Blanket of wool and shoddy yarn below certain price.
(v) Garments made by tailors, on job work basis for personal use of customers and
not intended for sale, have been exempted from excise duty.

(vi) Job work facility has been extended across the entire textilesector. The job
worker will have the option of not being under excise registration if the supplier of the
fibre, yarn, fabrics, undertakes to pay the duty. This came into effect from 1 April 2003.

(vii) Cenvat Credit Rules, 2002 have been amended to allow credit of AED (GSI) paid
for payment of Cenvat duties and special excise duty.

(viii) Rope, twine and similar items falling under heading 56.07) have been exempted
from excise duty by amending [Link].6/2002 CE. '
I
Also refer to: -

Notification No. 6/2003-CE dated 1 March 2003 vide which notification

No.6/2002 CE has been amended;

133
b) Notification No.712003-CE, which prescribes effective rate on all textile
materials;

c) Notification No.1612003-CE vide which other notifications relating to textile

sectors have been amended.

d) Notification No.8/2003-CE(NT) vide which notification relating to deemed credit

has been withdrawn with effect from 1 April 2003.

However, all existing exemptions and procedures in respect of garments and

other made-up articles were retained for the month of March, 2003. From I April 2003,
only new effective rates and procedures would be applicable.

13.2 Compounded duty on stainless steel pattis/pattas, and aluminium circles

13.2.1 Introduction

As per notification No. 34/2001-Central Excise dated 28 June 2001 issued under
rule 15 of the Central Excise (No.2) Rules, 2001 an assessee shall have an option to pay
duty of excise on the basis of the cold rolling machine installed for the manufacture of
stainless steel pattis/pattas, falling under Chapter 72, or aluminium circles falling under
chapter 76 of the Tariff Act by the process of cold rolling.

Prior to 1 July 200 I, the scheme was governed under provisions of rule 96ZA of
the Central Excise Rules, 1944. The new scheme is effective from 1 July 2001.

(i) The rates of duty per cold rolling machine per month are as follows: -

(a) Stainless steel pattis or pattas Rs.15,OOOpm

(b) Aluminium circles produced from sheets

manufactured on cold rolling machines
~ where length of the roller is 30" or less Rs.7,500 pm
~ where the length of the roller is more than 30" Rs.10,OOOpm
(ii) No credit of duty paid on any raw materials, component part or machinery or
finished products used for cold rolling of stainless steel pattis/pattas, or aluminium
circles under CENV AT Credit Rules, 2001 shall be taken.

13.2.3 Procedure

(i) The manufacturer shall make an application in the form specified in Appendix-I
to the said Notification No. 34/200 l-Central Excise dated 28 June 200 I to the
Superintendent of Central Excise for this purpose who may grant permission for the
period in respect of which the application has been made.

(ii) The application shall be made so as to cover a. period of not less than twelve
consecutive calendar months, but permission may be granted for a shorter period for
reasons to be recorded in writing, by the Deputyl Assistant Commissioner of Central
Excise.

134
(iii) If at any time during such period the manufacturer fails to avail himself of the
procedure contained in this notification, he shall, unless otherwise ordered by the Deputy
Commissioner or the Assistant Commissioner, be precluded from availing himself of
such procedure for a period of six months from the date of such failure.

(iv) If the manufacturer desires to avail himself of the procedure even after the expiry
of the period for which his application was granted, he shall, before such expiry, make a
fresh application to the Deputy/Assistant Commissioner of Central Excise and on his
failure to do so, he shall, except as provided herein, be precluded from availing himself
of such procedure for a period of six months from the date of such expiry.

(v) An application made by a manufacturer, under erstwhile sub-rule (1) of rule

96ZA of the Central Excise Rules, 1944, shall be deemed to be an application made
under the said notification.

13.2.4 Payment of duty per month

(i) A manufacturer whose application has been granted shall pay a sum calculated at
the rate specified in the said notification, subject to the conditions laid down therein.
Such payment shall be in full discharge of his liability for duty leviable on his production
of such cold re-rolled stainless steel pattas/pattis, or aluminium circles during the period
for which the said sum has been paid, subject to revision, if any, in the rate of duty and
payment of differential sum. In case the amount of duty so recalculated is less than the
sum paid, the balance shall be refunded to the manufacturer:

(ii) When a manufacturer makes an application for the first time for availing the
procedure contained in this notification, the duty liability for the month in which the
application is granted shall be calculated pro-rata on the basis of the total number of days
in that month and the number of days remaining in the month from the date of such
grant.

(iii) The sum payable under the said notification shall be calculated by application of
the appropriate rate to the maximum number of cold rolling machines installed by or on
behalf of such maaufacturer in one or more premises at any time during three calendar
months immediately preceding the calendar month in which the application under the
said notification is made.

(iv) The sum shall be tendered by the manufacturer along with the application.

13.2.5 Declaration and accounts

(i) The manufacturer who has been granted the required permission shall make an
.application in the specified Form (as per notification) to the Superintendent in charge of
the factory for permission to remove the stainless steel pattis/pattas, or aluminium circles
from his premises during the ensuing month, declaring the maximum number of cold
rolling machines installed by him or 0l! his behalf, in one or more premises at any time
during three calendar months immediately preceding the said calendar month in which
such application is made.

(ii) If such application is not made to the Superintendent of Central Excise within the
specified time limit, the manufacturer shall, unless, otherwise directed by the

135
. Deputy/Assistant Commissioner of Central Excise, and in exceptional circumstances, be
liable to pay duty on his entire production of stainless steel pattis/pattas, or aluminium
circles during the month or part thereof in respect of which the application was to be
made, at the applicable rate of duty.

(iii) The manufacturer shall also intimate the Superintendent of Central Excise in
writing of any proposed change in the number of cold rolling machines installed by him
or on his behalf, and obtain the written approval of such officer before making any such
change.

13.2.6 Procedural exemptions

(i) During the period in respect of which any manufacturer has been permitted to
avail himself of the procedure of the said notification, he shall be exempt from the
operation of rule 8 of the said rules.

(ii) Except in accordance with such terms and conditions as the Central Government
may by notification specify in this behalf, no rebate of excise duty shall be allowed under
rule 18 of the said rules, in respect of any stainless steel pattis/pattas, or aluminium .
circles exported out of India, out of the stock produced by such manufacturer during such
period.

13.2.7 New factories and closed factories

(i) In the case of a manufacturer who commences production for the first time or
who recommences production after having ceased production for a continuous period of
not less than three months, and who has been permitted by the Deputy/Assistant
Commissioner of Central Excise to avail of the special procedure, the amount payable by
him for the first month or part thereof, as the case may be, shall be provisionally
calculated on the basis of his declaration of the maximum number of cold rolling
machines that are or are likely to be installed by him or on his behalf during such period.
{
(1i) At the expiry of the period, the amount payable shall be recalculated on the basis
of the maximum number of cold rolling machines actually installed and if the initial
payment falls short of the total liability so determined, the deficiency shall be recovered
from the manufacturer and where the total liability is less than the initial deposit, the
balance shall be refunded to the manufacturer.

13.2.8 Condonation of failure to apply for special procedure

Notwithstanding anything contained in the said notification, the Additional/Joint

Commissioner of Central Excise may, at his discretion, for reasons to be recorded in
writing, and subject to such conditions as he may deem fit, apply the provisions
contained in the said notification to a manufacturer who has failed to avail himself of the
special procedure, or to comply with any condition laid down in this notification.

13.2.9 Factories ceasing to work opting for the normal procedure

. Where a manufacturer who had availed himself of the special procedure

contained in the -said notification ceases to work (i.e. for more than one or two shifts
only) or revert.s to the normal procedure, the duty payable by him in the month during

136
· which he has availed the procedure shall be calculated on the basis of the maximum
number of cold rolling machines installed during the last month in the prescribed manner
and the amount already paid for the month shall be adjusted towards the duty so
calculated. If on such adjustment there is any excess payment it shall be refunded to the
manufacturer and any deficiency in duty shall be recovered from him.

13.2.10 Confiscation and penalty

If any manufacturer contravenes any provision of the said notification in respect

of any excisable goods, then all such goods shall be liable to confiscation, and the
manufacturer shall be liable to penalty under rule 25 of the rules.

13.3 Compounded duty on embroidered fabrics

13.3.1 Introduction

(i) Special procedure for embroidery in pieces, in strips or in motifs on cotton

fabrics, man made fabrics, silk fabrics or woollen fabrics has been introduced vide
notification No. 33/200 l-Central Excise dated 28 June, 2001, made effective from 1 July
2001.

(ii) Prior to 1 July 2001, special procedure for leviability of duty on embroidery in
the piece, in strips or in motifs was regulated as per rule 96ZH to 96ZM of the Central
Excise Rules, 1944.

13.3.2 Rate of duty

(i) An assessee shall have the option to pay the duty of excise on the basis of meter
length of the machine per shift and fix a rate of duty of Rs.45 per meter length of the
machine (i.e. the distance between the points provided for the first needle and the last
needle of only one roller of the machine) per shift (i.e. a period not exceeding eight hours
working in a day, exclusive ofrest interval, provided the work of the same kind is carried
out by the same set of workers), for embroidery machines utilised for manufacture of the
said goods subject to certain conditions.

13.3.3 Conditions

(i) No credit of duty paid on inputs used in the manufacture of the embroidery and
capital goods used within the factory of manufacture of such embroidery shall be taken
under the Cenvat Credit Rules, 200 I;

(ii) The procedure mentioned in the notification has to be followed.

13.3.4 Availment of special procedure

(i) A manufacturer of embroidery in piece, in strips or in motifs shall make an

application in the form specified in the said notification to the Superintendent of Central
"Excise in this behalf.

(ii) The application shall be made so as to cover a period of not less than six
consecutive calendar months, but may be granted for a shorter period, for reasons to be

137
recorded in writing by the Deputy/Assistant Commissioner of Central Excise, as the case
may be.

(iii) If the manufacturer desires to avail himself of the special procedures on the
expiry of the period for which his application was granted, he shall, not later than a week
before such expiry, make an application to the Deputy/Assistant Commissioner of
Central Excise; and on his failure to do so, he shall, except as provided otherwise be
precluded from availing himself of such procedures for a period of six months from the
date of such expiry.

13.3.5 Opting out of the special procedure

If, at any time during the period of availment of the special procedure, the
manufacturer desires to opt out, he shall give a notice in writing to the Deputy/Assistant
Commissioner of Central Excise in charge of the factory of his intention at least one
week in advance. Once the manufacturer has ceased to avail himself of such special
provisions, from any date, he shall be precluded from availing himself of such procedure
for a period of six months from that date.

13.3.6 Transitional provision

An application made by a manufacturer before the commencement of this

notification under erstwhile sub-rule (1) of rule 96ZH of the Central Excise Rules, 1944.
shall be deemed to be an application made under the special procedure and the same
shall be deemed to have been granted and where such application has not been granted.
the Deputy/Assistant Commissioner of Central Excise shall dispose of the same as if it is
an application under special procedure.

13.3.7 Discharge of duty liability

(i) If a manufacturer whose application has been granted pays before the
commencement of any shift a sum calculated according to such rate, in the manner and
subject to the conditions herein laid down, such payment shall be in full discharge of his
liability for the duty leviable on his production of the embroidery during the said shift.

(ii) If there is revision in the rate of duty, the sum payable shall be recalculated and
paid or refunded on the basis of the revised rates from the date of the revision.

(iii) The sum payable shall be calculated by application of the appropriate rate to the
meter length of each of the machines intended to be employed by the manufacturer
during the shift.

(iv) The sum shall be paid by such manufacturer by debit in the account-current
maintained under these provisions before commencement of the shift.

13.3.8 Default in payment of duty

If the payment of duty is not made in the prescribed manner and within the
specified time-limit, the manufacturer shall, unless otherwise directed by the
Deputy/Assistant Commissioner of Central Excise, and in exceptional circumstances, be
liable to pay duty on his entire production of the embroidery during the shift or shifts, in
respect of which the payment was to be made, at the specified rate. However, where the

138
period of delay is upto five days, the decision will be taken by the Superintendent of
Central Excise.

13.3.9 Maintenance of accounts

(i) The manufacturer shall keep account-current with the Commissioner, of the sums
payable by him under the special procedure. Such account-current shall be maintained in
triplicate by using indelible pencil and double sided carbon and the assessee shall
periodically make credit in such account-current by cash payment into the Treasury so as
to keep sufficient balance in such account-current to cover the sums payable.

(ii) The manufacturer shall maintain a Daily Stock Account in the form specified in
Appendix II to the said notification.

13.3.10 Returns and intimations

(i) The manufacturer shall file a monthly return in proper form prescribed under rule
12 of the said rules appending therewith two carbon copies of the Daily Stock Account
duly signed.

(ii) The manufacturer shall intimate the Superintendent of Central Excise in writing
of any change in the number, meter length and speed ofthe machinesinstalled by him.

13.3.11 Exemption from certain provisions

(i) During the period in respect of which a manufacturer has been permitted to avail
himself of the special procedure under the said notification, he shall be exempt from the
operation of the provisions of rule 8 of the said rules.

(ii) Except in accordance with such terms, conditions and limitations as the Central
Government may by notification specify in this behalf, no rebate of excise duty shall be
paid under rule 18 of the Central Excise Rules, 200 I, in respect of any embroidery
exported out of India out of the stock produced by such manufacturer during such period.

13.3.12 Power to condone failure to apply for special procedure

Notwithstanding anything contained in the aforesaid notification, the

Additionall1oint Commissioner of Central Excise may, at his discretion and subject to
such conditions as he may deem fit, apply the provisions contained in the said
notification to a manufacturer who has failed to avail himself of the special procedure, or
to comply with any condition, laid down in the said notification.

13.3.13 Confiscation and penalty

If any manufacturer contravenes any provision of the said notification in respect

of any excisable goods, then all such goods shall be liable to confiscation, and the
manufacturer shall be liable to penalty under rule 25 of the said rules.

139
 CHAPTER 14

RAISING, ADJUDICATION AND RECOVERY OF DEMANDS

14.1 Raising of demand by issue of show cause cum demand notice

14.1.1 Introduction

(i) Section 11A of the Central Excise Act, 1944 provides that if excise duty has not
been levied or paid or short levied or short paid or erroneously refunded on the basis of
any approval, acceptance or assessment, the Central Excise officer may within one year
from the relevant date issue a notice demanding the differential duty.

(ii) In case where short levy is by reason of fraud, collusion or any wilful
misstatement of facts etc., the demands can be raised within 5 years from the relevant
date.

(iii) The Board has also empowered the Officers of Director General of Central
Excise, Intelligence, to issue show-cause notices in accordance with the powers of
Central Excise Officers conferred on them under rule 3 of the Central Excise Rules.
2001.

(iv) Where the service of the notice is stayed by an order of a court the period of such
stay shall be excluded in computing the aforesaid period of one year or five years.

(v) . An assessee may request for waiver of notice, if he deposits the amount of
differential duty on his own along with interest in respect of only such cases where such
non-levy or short levy or non-payment or short payment is by reason other than
suppression of facts, fraud, collusion etc. By opting for waiver of issue of notice. the
assessee may avoid long drawn process of adjudication and appellate process including
interest on the differential duty demanded.

(vi) No proceedings for recovery of duty so short levied or short paid or erroneously
refunded, shall be legally sustainable, unless a legal demand notice is issued on the
defaulter.

14.2 Adjudication of demands

:~
(Central Excise Officers have been delegated with the power to determine duty
short paid or not paid or erroneously refunded under Section IIA of the said Act. For
this purpose, the Board has delegated the powers of adjudication and determination of
duty to be exercised, based on monetary limi0(duty involved in a case) as under: -

(a) All cases involving fraud, collusion, any wilful misstatement, suppression of
facts, or contravention of Central Excise Act/ Rules made thereunder-with intent to
evade payment of duty and / or where extended period has been invoked in show-cause-
notices, (including CENV AT cases), will be adjudicated by:-

140
 (i) Deputy/Assistant Commissioners Upto Rs.5 lakh

(ii) Joint Commissioners Above Rs.5 lakh and upto Rs.20 lakh

(iii) Additional Commissioners Above Rs.20 lakh and upto Rs.50 lakh

(iv) Commissioners without limit

(b) Cases which do not fall under the category (a) above, will be adjudicated as
follows: -

(i) Deputy/Assistant Commissioners Upto Rs.5 lakh

(ii) Joint Commissioners Above Rs.5 lakh and upto Rs.20 lakh

(iii) Additional Commissioners Above Rs.20 lakh and upto Rs.50 lakh

(iv) Commissioners without limit

(c) Cases related to issues mentioned under first proviso to Section 35B(1) of Central
Excise Act, 1944 would be adjudicated by the Addl. Commissioners/Joint
Commissioners without any monetary limit.

(d) All cases including cases relating to determination of classification and valuation
and cases pertaining to Cenvat credit whether or not involving fraud etc. will be treated
uniformly and the prescribed monetary limit is applicable to all cases for the purpose. of
adjudication.

[Authority Board's Circular No. 752/68/2003 CX (F. No.208/27/2003/CX6) dated 1 October 2003}

14.3 Recovery of duty demanded

14.3.1 Interest on delayed payment of duty

(i) Under the provisions of Section lIAA, interest IS charged on the delayed
payment of duty as follows: -

(a) In the normal case interest at the rate of 24 per cent per annum (15 per
cent per annum from 13 May 2002) will be charged for the period of delay after 3
months of the determination of the duty liability till the date of payment of duty.

(b) In the case the duty is not paid on account of fraud, suppression etc. the
interest will be charged from the first date of the month following the month in
which the duty was not paid.

(c) The provisions of Section llAA shall not be applicable where the duty
becomes payable on or after 11 May 2001.

(ii) Under Section 11AB, as modified from 11 May 2001 interest at the rate of 24 per
cent per annum (15 per cent per annum from 13 May 2002 and 13 per cent from 12
September 2003) shall be chargeable from the first date of the month succeeding the

141
month in which the duty ought to have been paid or erroneously refunded, till the date of
payment of such duty (Refer Annexure 3.1 for rates of interest from time to time).

14.3.2 Penalty and confiscation

(i) Section 11AC prescribes a mandatory penalty equal to the duty not levied or paid
or short paid or erroneously refunded by reason of fraud, suppression etc. However, in
case the duty and interest thereon is paid within 30 days of the communication of the
order, the penalty shall be 25 per cent of the duty subject to it being paid within the said
period of 30 days.

(ii) Rule 25 provides for penalty on any producer, manufacturer, 'registered person of
a warehouse or a registered dealer not exceeding the duty on the excisable goods in
respect of which any of the specified contravention have been committed, or rupees ten
thousand, whichever is greater. The penalty is subject to the provisions of Section 11
AC of the Central Excise Act, 1944. The offending goods are also liable to confiscation.
The specified contravention are: -

(a) Removal of any excisable goods in contravention of any of the provisions

of the said Rules or the notifications issued under the said Rules; or

(b) Non-accountal of any excisable goods produced or manufactured or

stored; or

(c) Manufacture, ,production or storage of any excisable goods without

having applied for the registration certificate required under Section 6 of the
Central Excise Act; or

(d) Contravention of any of the provisions of the said Rules or the

notifications issued under the said rules with intent to evade payment of duty.

(iii) Under rule 26, any person who acquires possession of, or is in any wa
concerned in transporting, removing, depositing, keeping, concealing, selling or
purchasing, or in any other manner deals with, any excisable goods which he knows or
has reason to believe are liable to confiscation under the Act or the said Rules, shall be
liable to a penalty not exceeding the duty on such goods or rupees ten thousand,
whichever is greater.

(iv) Rule 27 provides for imposition of a general penalty which may extend to five
thousand rupees and with confiscation of the goods in respect of which the offence is
committed. This is attracted when no other specific penalty is provided for.

14.3.3 Penalty under rule 25

If penalty is imposed under Section 1IAC, penalty under rule 25 will not be
imposed. This, however, does not preclude the department from confiscating the goods,
imposing any fine in lieu of confiscation and prosecuting a person.

14.3.4 Notice before levy of penalty

Rule 26 also provides that before any order of penalty or confiscation is passed
the adjudicating authority shall follow the principles of natural justice. In other words a

142
notice explaining the reasons why penalty should not be imposed or goods confiscated
has to be given to the person. Thereafter, reasonable opportunity shall be given to such
person to explain or defend his case. The adjudicating Officer shall pass a reasoned
order, incorporating the defence arguments given by such person or his authorised
representative.

14.3.5 Confiscated goods to vest with Government

As per rule 28 when any goods are confiscated under these rules, such thing shall
thereupon vest in the Central Government. Accordingly, the Central Excise Officer
adjudging confiscation shall take and hold possession of the things confiscated, and
every Officer of Police, on the requisition of such Central Excise Officer, shall assist him
in taking and holding such possession.

14.3.6 Option to pay fine in lieu of confiscation

Rule 30 provides that if the owner of the goods, the confiscation of which has
been adjudged, exercises his option to pay fine in lieu of confiscation, he may be
required to pay such storage charges as may be determined by the adjudicating officer.

14.3.7 Disposal of confiscated goods

Provisions for disposal of goods confiscated are contained in rule 29. Goods of
which confiscation has been adjudged and in respect of which the option of paying a fine
in lieu of confiscation has not been exercised, shall be sold, destroyed or otherwise
disposed off in such manner as the Commissioner may direct.

14.4 Duty under protest /'

Any assessee who desires to pay duty under protest, may do so by following the
procedure mentioned below: -

(i) The assessee shall inform the Superintendent or Inspector of Central Excise in
writing giving reasons for paying duty under protest and a dated acknowledgement will
be given to him.
(ii) He will mark invoices or monthly/quarterly return indicating the goods on which
duty is paid 'under protest'. If it is a lump-sum duty payment in respect of past demand,
he may record the fact of duty payment under protest in the Personal Ledger Account
[against debits] CENV AT Account [against debits] and the Daily Stock Account.

(iii) If a case is appealed against by the assessee or where the appeal period for further
appeal is available, he may continue to pay duty under protest. However, if decision is
not in his favour and he exhausts the appellate remedy or does not appeal within
stipulated period, the assessee shall not have any right to pay duty under protest.

(iv) A letter of protest or a representation for paying duty under protest shall not
constitute a claim of refund.

(v) _The application of time limitation for refund of duty fixed at one year from the
relevant date under Section 11B shall not apply when the duty has been paid under
protest.

143
 CHAPTER 15

FILING OF APPEALS

15.1 Filing of appeals

(i) With the creation of Customs, Excise & Gold Control Appellate Tribunal
(CEGA T) with effect from 25 October 1982, there is a three tier remedy available to the
assessee and the department against the order passed by the Central Excise Officer
(CEO) except in case of orders passed by Commissioner of Central Excise against which
only 2 tier remedy has been provided. The first appeal lies to CCE (Appeals); second
appeal lies to CEGA T; and third appeal lies to Supreme Court. But where orders of the
CEGAT are not related to determination of rate of duty or value of goods, a reference to
High Court lies under Section 35G instead of appeal to supreme Court. The
nomenclature has been changed to Customs, Excise & Service Tax Appellate Tribunal
(CESTAT) with effect from 1 March 2003.

(ii) Appeal against the orders of the Central Excise officer, CCE (Appeals) etc. and
CEGA Ts/CEST ATs can be filed before the authorities mentioned below: -

Appealable Orders Appellate Authority

(a) Any decision or order passed by a C.E.O. CCE (Appeals) (Section

lower in rank than the CCE 35)

(b) (i) Any decision passed by the C.C.E. as an CEGAT (Section 35B)
adjudication authority

(ii) Any order passed by the first authority i.e. -do-

C.C.E. (Appeals).

(iii) Any revision order passed by C.B.E.C. or -do-

C.C.E. under Section 35A, as it stood
immediately before 11 October 1982

(iv) Any order passed By C.B.E.C. (Appeals) -do-

under erstwhile Section 35 as it stood on 11
October 1982

(c) (i) Any order passed by the CEGA T relating Supreme Court of .India
among other things to the rate of duty or (Section 35L)
value of goods

(ii) Any judgment of High court delivered on a -do-

reference under Section 35G

15.2 Statutory provisions

Section 35 to 35Q of the Central Excise Act, 1944 as well as Central Excise
(Appeal) Rules, 2001 (effective from 1 July 2001) provide for procedure to be followed
for going in appeal to the different authorities.

144
(i) Provisions in the Central Excise Act

(i) Section 35 & 35A Appeal to Commissioner (Appeals) - to be filed

within 60 days from the date of communication
of such order (Prior to 11.05.2001 it was 30
days)

(ii) 35B, 35C & Appeal to CEGAT - to be filed within three

35D months from the date on which orders to be
appealed against is communicated to the
concerned person

(iii) 35Q Authorised representative

(iv) 35E Power of Board or the CCE to pass orders

35EA Power of revision of orders by Board or CCE in

certain cases

35EE For revision by Central Government

35F Deposits pending appeals

35G Statement of cases to High Court

35H to K Application to High Courts with in 180 days of

the date upon which notice of an order to be
appealed against is served

35L Appeal to Supreme Court - within 60 days from

the date of receipt of orders to be appealed
against

35-0 and Exclusion of time taken for copy

35-P Transitional provisions

(ii) Provisions of Central Excise (Appeal) Rules, 2001

(i) Rule 3 Form of appeal to CCE (Appeals)

(ii) Rule 4 Form of application to CCE (Appeals)

(iii) Rule 7 Form of application to Tribunal

(iv) Rule 8 Form of application to High Court

(v) Rule 9 Form of reVISIOn application to Central

Government

(vi) Rule 10 Procedure for filing revision application

(vii) Rule 11 Procedure for filing appeals etc.

(viii) Rule 12 Qualification for authorised representative

145
 CHAPTER 16

COLLECTION OF REVENUE AND CREDIT TO THE GOVERNMENT

ACCOUNT

16.1 Collection procedure

16.1.1 Manual for collection of revenue and payment of refunds

The procedure for collection and accounting of excise duty and other receipts are
given in the "Manual for collection of Revenue and Payment of Refunds etc." and their
accounting in the formations under the Central Board of Excise and Customs brought out
by the Ministry of Finance, Department of Revenue, Central Board of Excise and
Customs.

16.1.2 Payment through challan (TR-6) deposit in Banks

Payment of Central Excise duty is made by an assessee into any branch of the
nominated Public Sector Bank. He presents a challan in quarduplicate along with
cheque, cash or demand draft for the amount of duty payable. On receiving payment the
branch of the bank hands over the duplicate and triplicate copies of the paid challan to
the assessee. The assessee retains, the triplicate copy for his record. He sends the
duplicate copy of the paid challan with the monthly return (Form R.T.l2 or ERI) which
he submits to the Excise Range Officer every month/quarter.

16.1.3 Receiving bank to prepare scroll of payments received

The receiving branch of the bank makes out three copies of daily branch 'bank
scroll of all payments received. The scroll is made out major headwise and
Commissionerate wise.

16.1.4 Link Bank to furnish details to Focal point Bank

The receiving branch of the bank retains one copy of the branch scroll and send
two copies of the branch scroll alongwith the original and quarduplicate copies of the
challans to a link bank. The link bank retains one copy of the branch bank scroll and
sends the other copy of the scroll together with the original and quarduplicate of the
challans to a Focal point bank.

16.1.5 Focal point bank to credit payment to the Government account

The Focal point bank credits the amounts received by the receiving banks to
Government account (directly or through its head office) and intimate the Central
Accounts Section of the Reserve Bank in Nagpur. The Focal point bank prepares its own
main bank scroll of all payment received. It retains one copy of the main bank scroll.

16.1.6 Pay and Accounts Officer to check and verify

The focal point bank sends two copies of the main scroll alongwith the third copy
of the branch bank scroll and original copies of the challan to the Pay and Accounts
Officers of respective Commissionerates. The quadruplicate copies of the challans are

146
sent by the Focal point bank to a Central Excise Officer nominated by the respective
Commissioner of the Central Excise department, for being transmitted to the concerned
Range Excise Officers. The Pay and Accounts Officer returns one copy of the main
scroll after check and verification, to the Focal point bank.

16.1.7 Summary of transactions to Chief Controller of Accounts

The Focal point bank sends a monthly summary of transactions to the Pay and
Accounts Officer in triplicate and receives back one copy certified as correct. One copy
of the summary of transactions is forwarded by the Pay and Accounts Officer to the
Chief Controller of Accounts, Central Board of Excise and Customs for record.

16.1.8 Range officer to certify second copy of challan

Every month, the Range officer receives the duplicate copies of the challan along
with the monthly/quarterly return (Form R.T.12 or ERI) from the assessee. He checks
the duplicate copy against the quadruplicate copy received from the Focal point bank.
He certifies the duplicate copy as correct and sends it to the Chief Accounts Officer
alongwith a copy of the monthly/quarterly return (Form R.T.12 or ERI) and a copyof
assessee's Personal Ledger account. The quadruplicate copy is also sent.

16.1.9 Branch scrolls to be preserved and made available to audit

One copy of the branch scrolls retained by the receiving branch, one set of branch
scrolls received from all the branches by the link branch and retained by it, and triplicate
copy of the Forwarding Letter of Advice duly acknowledged, one copy of the main scroll
and duplicate copy of the Forwarding Letter of Advice retained by the Focal point bank
are to be preserved and made available by the respective branches of the State Bank of
India or Public Sector Banks for scrutiny by the officers of the Excise department, the
Reserve Bank of India and the Comptroller and Auditor General of India until the expiry
of such periods as may be indicated by the Reserve Bank of India in consultation with
the Central Government and the Comptroller and Auditor General of India.

16.1.10 Prompt transfer of money to Reserve Bank

With a view of ensuring that the amounts received by the banks are promptl
passed on to the Central Government account, the officers of the Reserve Bank of India
inspect the records of the branches of the State Bank of India and Public Sector Banks.

16.1.11 Preservation of records

The Public Sector Banks will preserve records for a period of 5 years. In case,
however, audit has not been conducted within the period, the records will not be
destroyed unless otherwise advised by appropriate audit authorities Ref. CGA's U.O.
No.14023/1178/TAlI249 dated 15.06.1978 and C&AG's U.O. No.2126/TA.II1234-78
dated 19.08.1978.

16.2 Accounting of duty collection

16.2.1 Payment through nominated Bank

The work of collection of the revenues of the department is handled by the

Reserve Bank of India, State Bank of India and its subsidiaries, and selected Public

147
Sector Banks for each Commissionerate which is regarded as a unit for purpose of
accounting. In addition to the Banks, the work of collection of revenue is handled by the
departmental treasuries, wherever they exist. The Pay and Accounts Officer heads each
of the accounting unit. The function of the Pay and Accounts Officer include inter-alia,
checking and compilation of revenue accounts. The revenue receipts of each
Commissionerate has to be compiled every month with reference to the Bank scrolls
received from the Focal Point Bank.

16.2.2 Payment through money order

The assessees may also pay duty by money order sent to the Chief Accounts
Officer (CAO) in each Commissionerate accompanied by the demand containing details
of the assessees and the demand duly assessed by the departmental officer. The CAO
deposits such amounts received by money orders into the Focal Point Bank along with
challan in Form TR 6. The relevant records in CAO's office, in this connection, are
auditable documents.

Payment of duty may also be made in departmental treasuries in the

Commissionerates, in some places. The departmental treasury officer will deposit the
amount into the focal point bank on challans in duplicate. The relevant records in the
departmental treasuries are also auditable documents.

16.3 Internal checks ~ \ 1\'" .

The Department of Revenue has set up three types of audit at different stages
within the Central Excise Organisation as stated below: -

(i) audit by Chief Accounts Officer;

(ii) audit by the Assistant Commissioner of Central Excise (Audit) of the Central
Excise Commisionerate; and

(iii) audit by the supervisory executive officers.

16.3.1 Check at range office

The Range Officer will prepare monthly statement on the basis of duplicate
copies of challans received by him from the asses sees, showing details of payments
made by the asses sees in the personal ledger accounts as well as against assessment
documents. These statements will be sent to the Chief Accounts Officer, duly supported
by copies of paid challans. Copies of Personal Ledger Accounts will also be sent to the
Chief Accounts Officer by the Ranges in respect of goods covered by Self Assessment
Procedure.

16.3.2 Chief Accounting Officer../

The essential function of audit by the Chief Accounting Officer is to ensure, by

comparing copies of revenue records received from the lower formations with the
documents received from the Pay and Accounts Officer. Some of the other functions
include: -

,
'-
148
(a) Checking the credit entries with the challans, arithmetical check of debit entries
and balance in Personal Ledger Account;

(b) Exercising check on receipts from penalties, rent, other dues and miscellaneous
demands for duty;

(c) Post audit of refunds consequent upon issue of adjudication order or order in
appeal or revision;

(ii) The monthly statements of revenue receipts received from the Range Officers are
reconciled by the Chief Accounting Officer with the figures booked by the Pay and
Accounts Officer in his monthly account.

(iii) The Chief Accounting Officer also deals with the disposal of rebate applications
and other connected documents relating to export under claim for rebate of duty by the
manufacturer {
16.3.3 Scale of checks in C.A.O.'s Office

The scale of checks as prescribed above for the Chief Accounts Officer's branch
will be as follows: -

Upper Division Clerks 100 per cent

Deputy Office Superintendent Level IIII 25 per cent
Assistant Chief Accounts Officer or Chief 5 per cent
Accounts Officer
16.4 Interest on delayed transfer of tax collection by banks to the Government
account

The Reserve Bank of India in consultation with the Government of India made
certain changes in the procedure for recovery/payment of interest vide GANB
No.2375/GA/B4/(10) G-90/91 dated 27 March 1991. According to the instructions
interest at the rate of 5 per cent per annum will be charged on receipt of transactions of
Rs.1 crore and above, if the period of delay exceeds one month.

As per [Link] No.14/42.01.01l95-96 dated 10 January 1996 a uniform

transit period of 5/9 days has been provided to the receiving branches (local/outstation)
from the date of deposit of Government dues to remit to the Government Account at
RBI.

Further, RBI vide Notification [Link].1115/42.01.001/95-96 dated 14

December 1996 has instructed that penal interest is to be levied on all remittances
delayed beyond one month irrespective of the amount involved and on remittances
delayed beyond 15 days for amounts involving Rs. one lakh and above vide
[Link] No.3/42.01.011l2000-01 dated 5 July 2000.

(AuthoritytLetter No.EDPIDRlSBTI2000-0JI474 dated 5 December 2000 from office

of the Pr. Chief Controller of Accounts - Central Board of Excise and Customs, New
Delhi).

149
 CHAPTER 17

ACCOUNTS TO BE MAINTAINED BY ASSESSEES

17.1 Dispensing with statutory records

To give effect to the decision of the Government as announced by the Finance

Minister in the Budget Speech (2000-2001 - Para - 100), the Government issued
notification No.44/2000 CE (NT) dated 30 June 2000 (effective from 1 July 2000),
amending the Central Excise Rules, 1944 for dispensation of statutory records which
were required to be maintained by the manufacturer under the Central Excise Rules,
1944 as per the prescribed proformae (Board's circular No.536/32/[Link],
[Link]-6 dated 30 June 2000).

17.2 Private Records

17.2.1 The main features of the acceptance of private records are as below: -

(i) The fact that the rules do not prescribe 'statutory records' shall not be construed
that no record has to be maintained. Every assessee shall maintain private record.

(ii) The rules which require certain records to be maintained, are self contained and
they specify the minimum information that an assessee MUST enter in their own record;

(iii) There is no format for record-keeping, except in the case of rule 17 of the said
Rules where it is provided that the 100% EOU unit or a unit in FTZ/SEZ shall maintain
in proper form appropriate account relating to production, description of goods, quantity
removed, duty paid and each removal shall be made on an invoice. This Format has
been notified by Notification No. 59/200 l-Central Excise (N.T.) Dated 6 August, 2001.

(iv) This means that the assessee is free to device his record-keeping, depending upon
his accounting requirements but shall ensure that the requirements of particular rules are
met;

(v) There is a specific requirement about maintenance of "Daily Stock Account" in

rule 10 of the said Rules. It provides that every assessee shall maintain proper records,
on a daily basis, in a legible manner indicating the particulars regarding description of
the goods produced or manufactured, opening balance, quantity produced or
manufactured, inventory of goods, quantity removed, assessable value, the amount of
duty payable and particulars regarding amount of duty actually paid. The first page and
the last page of each such account book shall be duly authenticated by the producer or
the manufacturer or his authorised agent. All such records shall be preserved for a period
of five years immediately after the financial year to which such records pertain.

(vi) There is no requirement of 'authentication' of records by jurisdictional Central

Excise Officer before a book/register is brought into use by an assessee. These records
(relevant for Central Excise) shall, however, be authenticated on the first and last page by
the assessee in the same manner as the Daily Stock Account. They shall also be
preserved for a period of five years immediately after the financial year to which such
records pertain.

150
(vii) Every assessee is statutorily required to furnish to the Range Officer, a list in
duplicate, of all the records prepared or maintained by him for accounting of transactions
in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods
including inputs and capital goods.

(viii) Every assessee shall, on demand make available to the Range officer duly
empowered by Commissioner or the audit party deputed by the Commissioner or the
Comptroller and Auditor General of India: -

(a) the records maintained or prepared by him in terms of sub-rule (2) of rule
22 of the said Rules;

(b) the cost audit reports, if any, under section 233B of the Companies Act,
1956 ( 1 of 1956); and

(c) the Income-tax audit report, if any, under section 44AB of Income-tax
Act, 1961 (43 ofI961),

for the scrutiny of the officer or audit party, as the case may be.

(ix) Every assessee who is having more than one factory and maintains separate
records in respect of every factory for the purpose of audit, shall produce the said records
for audit purposes.

17.2.2 Records shall mean all the records prepared or maintained by the assessee for
accounting of transactions in regard to' receipt, purchase, manufacture, storage, sales or
delivery of the goods including inputs and capital goods. All accounts, agreemen .
invoice, price-list, return, statement or any other source document, whether in writing or
in any other form shall be treated as records. Source documents are those documen
which form the basis of accounting of transactions and include sales invoice, purchase
invoice, journal voucher, delivery challan and debit or credit note.

17.2.3 Every assessee is to be asked to furnish the list of all records prepared or
maintained by him for accounting of transactions in regard to' receipt, purchase
manufacture, storage, sales or delivery of goods including inputs and capital goods. if
they have not done it so far. If there is any modification in the list, the same may be
communicated to the Department as and when such modification takes place.

17.2.4 Non-maintenance of daily stock account as contemplated under the rules or other
information mentioned in other rules mentioned above by the assessee in his pri ate
records will mean contravention of specified rules attracting appropriate penal action. If
such non-maintenance of records is with intent to evade payment of Central Excise duty,
the more stringent penal provisions of the Central Excise Act and Central Excise Rules
shall be attracted. Trade and industry are to ensure that the requisite information as
required under amended rules is scrupulously maintained in their identified private
records to avoid any penal action.

17.2.5 The. private records relevant for Central Excise including the Daily Stock
Account maintained in compliance with the provisions of the said Rules shall necessarily
. be kept in the factory to which they pertain .

. IS I
17.3 Returns

17.3.1 Introduction

The Central Excise (No.2) Rules, 2001 provide that the assessee shall be required
to file certain periodic returns, which relate to his tax liability and other transactions.

17.3.2 Monthly/Quarterly Return

(i) Rule 12 of the said Rules provides that every assessee shall submit to the
Superintendent of Central Excise a monthly return in proper form, of production and
removal of goods and other relevant particulars, within ten days after the close of the
month to which the return relates. However, where an assessee is availing of the
exemption under a notification based on the value of clearances in a financial year, he
shall file a quarterly return in proper form, of production and removal of goods and other
relevant particulars, within twenty days after the close of the quarter to which the return
relates. The prescribed return is E.R.l Return, notified by Notification No. 48/2001-
Central Excise (N.T.) dated 26 June 2001 which has further been revised vide
notification NO.7112003 CE (NT) dated IS September 2003.

(ii) As duties payable on individual consignments need not be paid at the time of
removal from the factory or approved place of storage, and sum total of this duty liability
can be discharged on monthly basis (from 1 April 2003 onwards) in respect of clearances
for a month, certain details for removals for each month, duties payable and the manner
in which the actual duty payments are effected by the assessee, the interest payment - if
any, where duties paid beyond permitted dates etc. have been specified in the E.R.l
Return.

(iii) The assessees would continue to submit alongwith the E.R.l Return for the
month/quarter, copies of the PLA and relevant TR6 challans etc. The PLA Extracts will
give details of all the credits made through TR6 challans during the month and upto the
Sth of the following month - upto which the duty liability can be discharged for the

month. A summary could also be put at the end of the PLA Extracts indicating the
following: -

(a) opening balance, after discharging the duty liability for the previous
month;

(b) the credits made during the month; and upto the Sth of the following
month;

(c) total duty discharged through PLA for the month; and

(d) closing balance in the PLA after discharging the duty liability for the
month.

(iv) The units in the SSI sector are also required to pay duty on monthly basis.

(v) The instructions in the form o£"NOTES" given at the end of E.R.l return further
elaborate the manner in which it should be compiled and the information to be furnished
to the department.

152
(vi) Return to be filed by Hundred per cent Export Oriented UndertakingslUnits in
Free Trade ZoneslUnits in Special Economic Zones is the E.R.2 Return, notified by
Notification No. 49/2001-Central Excise (N.T.) dated 26 June 2001.

17.4 Changes from 1 July 2001

17.4.1 Daily stock account/"

No statutory proformae (like RGI Register) for maintenance of proper records for
day to day production and clearance of excisable goods is prescribed. However, as per
rule 10 of Central Excise (No.2) Rules, 2001, every assessee shall maintain proper
records, on a daily basis indicating the particulars regarding description of the goods
manufactured, cleared, assessable value and the amount of duty payable etc. The first
page and the last page of such account book shall be authenticated by the manufacturer
or his authorised agent. All such records shall be preserved for a period of five years
immediately after the financial year is closed.

17.4.2 Goods to be removed on invoice

(i) The invoice shall be signed by the owner or his authorised agent and in the case
of cigarette each such invoice shall also be counter signed by the concerned Inspector of
Central Excise or the Superintendent of Central Excise.

(ii) Each invoice foil shall be authenticated by the owner or working partner or
Managing Director or Company Secretary.

(iii) Each invoice shall be serially numbered and shall contain the registration number
description, classification, time and date of removal, rate of duty, quantity, value and the
duty payable.

(iv) The invoice shall be prepared in triplicate, original for buyer, duplicate for
transporter and triplicate for assessee (office copy).

(v) Only one book of invoice shall be used at a time unless specifically allowed by
the Deputy Commissioner/Assistant Commissioner of Central Excise.

(vi) Serial number of the invoice book to be used shall be intimated to the
superintendent of Central Excise.

17.4.3 Filing of return

Every assessee shall submit to the Superintendent of Central Excise a monthly

return on proper Form (RTI2 - Now ERI) of production and removal of goods before
io" of the next month (20th of the succeeding month after closure of quarterly records in
respect of units availing exemption on basis of value or quantity of clearance).

17.4.4 Furnishing of a list of records maintained

Rule 22(2) of the Central Excise Rules, 2001 provides that every assessee shall
furnish to the designated officer a list in duplicate, of all the records prepared or
. maintained by the assessee for accounting of transactions in regard to receipts, purchase,
manufacture, storage, sales or delivery of goods including inputs and capital goods.

153
17.4.5 Documents and records for Cenvat credit

An assessee has to maintain the following records for purposes of Cenvat credit: -

(i) An invoice issued by a manufacturer on clearance of input or capital goods based

on which Cenvat credit is taken

(ii) An invoice issued by an importer from his depot

(iii) An invoice issued by a first stage dealer or a second stage dealer

(iv) A supplementary invoice issued by a manufacturer or importer

(v) A bill of entry

(vi) Proper records for the receipt, disposal, consumption and inventory of the inputs
and capital goods in which the relevant information regarding the value, duty paid, the
person from whom the inputs or the capital goods have been purchased (erstwhile Form
RG 23A or 23C)

(vii) Copies of invoices issued in respect of inputs/capital goods cleared as such

(viii) Separate Account for dutiable and non-dutiable products manufactured from
common inputs (rule 6)

(ix) Quarterly return (on the prescribed proformae) showing details of inputs received
and utilised, during month/quarter (Notification No.5/2002 CE (NT) dated 1 March
2002).

(x) Proper record of inputs/partially processed inputs/capital goods sent to job

workers and their receipts.

154
 CHAPTER-IS

MISCELLANEOUS

IS.1 Export Oriented Units (EOUs), units in Export Processing Zones (EPZs),
Electronics Hardware Technology Parks (EHTPs) and Software Technology
Parks (STPs)

(i) Eligibility

Unit undertaking to export their entire production of goods and service may be
set up under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ)
Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software
Technology Park (STP) Scheme. Such units may be engaged in manufacture, services,
repair, remaking, reconditioning, re-engineering including making of
gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing,
aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisciculture
viticulture, poultry, sericulture and granites and may export all products except restricted
and prohibited items of exports in ITC (HS). Units for generation/distribution of power
may also be set up in EPZs. No trading units are permitted.

(ii) Export and import of goods ~

(a) An EOU/EPZ/EHTP/STP unit may export goods and services including agro-
products, partly processed jewellery, sub-assemblies and components. It may also export
by-products, rejects waste scrap arising out of the production process.

(b) An EOUIEPZIEHTP/STP unit may import without payment of duty all type of
goods, including capital goods, as defined in the policy, required by it for its activities as
mentioned above or in connection therewith, provided they are not prohibited items of
imports in the ITC (HS). The units shall also be permitted to import goods required for .
the approved activity, including capital goods, free of cost or on loan from clients.

(c) EOU/EPZ/EHTP/STP units may procure goods required by it for its activities or
in connection therewith, without payment of duty, from bonded warehouses in the DT A
set up under the Policy and from International Exhibitions held in India.

(d) STP/EHTP/EPZ may import without payment of duty all types of goods for
creating a central facility for use by software development units in STP/EHTP/EPZ. The
central facility for software development can also be accessed by units in the DT A for
export of software. .

(e) An EOU engaged in agriculture, animal husbandry, floriculture, horticulture,

pisciculture, .viticulture, poultry or sericulture may import without payment of duty only
such goods as are permitted to be imported duty free under a Custom Notification issued
in this behalf.

(f) Further, EOUs in agriculture and horticulture engaged in contract farming shall
be permitted to import/procure from DT A specified goods and take out the same to the
fields of contract farmers for production or in connection therewith and bringing back the'
produce for exports.

155
(g) EOUIEPZ gem and jewellery units may also source gold/silver/platinum through
the nominated agencies.

(h) EOUIEPZ/EHTP/STP unit, other than service units, may also export to Russian
Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of
the buyer subject to RBI clearance, if any.

(iii) Second hand Capital Goods

Second hand capital goods may also be imported without payment of duty.

(iv) Leasing of Capital Goods

An EOU/EPZIEHTP/STP unit may, on the basis of a firm contract between the

parties, source the capital goods from a domestic/foreign leasing company. In such a
case, the EOUIEPZIEHTP/STP unit and the domestic/foreign leasing company shall
jointly' file the documents to enable import/procurement of the capital goods without
payment of duty.

(v) DTA Sale of finished products/rejects waste/scrap/remnants and b-

products

The entire production of EOUIEPZ/EHTP/STP units shall be exported subject to

the following: -

(a) Unless specifically prohibited in the LOPILOI, rejects may be sold in the
Domestic Tariff Area (OTA) on payment of duties as applicable to sale on prior
intimation to the Customs authorities. Such sales shall be counted against DT ale
entitlement. Sale of rejects upto 5 per cent of FOB value of exports shall not be subje t
to achievement of NFEP.

(b) Units, other than gems and jewellery units, may sell goods/services upto 50 per
cent of FOB value of exports, subject to fulfilment of minimum FEP on pa ment of
applicable duties. Sales made to a private bonded warehouse shall also be en into
account for the purpose of arriving at FOB value of exports by EOUIEPZ units provided
payment for such sales are made from EEFC account. No DT A sale shall be permi sible
in respect of motor cars, alcoholic liquors, tea (except instant tea) and books or b a
packaging/labeling segregation/refrigeration unit and such other items as may be notified
from time to time.

(c) Gems and jewellery units may sell upto la per cent of FOB value of exports of
the preceding year in DTA subject to fulfilment of NFEP. In respect of sales of plain
jewellery, the recipient shall pay concessional rate of duty to the Customs in Indian
rupees as applicable to sale from nominated agencies. In respect of studded jewellery
duty shall be payable in Indian rupees as notified by Customs.

(d) Scrap/waste/remnants arising out of production process or in connection

therewith may be exported or sold in the DT A on payment of duties within the overall
ceiling of 50 per cent of FOB value of exports but shall not be subject to achievement of
minimum FEP. Sale of waste/scrap/remnants by units not entitled to DTA sale or sales
beyond the DT A sale entitlement, shall be on payment of full duties.

156
(e) There shall be no duties/taxes on such scrap/waste/remnants in case the same are
destroyed with the permission of Customs authorities.

(f) EOUIEPZ/EHTP/STP units may be permitted to sell finished products which are
freely importable under the Policy in the DTA over and above the levels permissible
under sub paragraph (b) above against payment of full duties, provided they have
achieved the- NFEP and EP. Such sale may also be permitted in exceptional cases
without achievement ofNFEP/EP.

(g) For services, including software units, sale in the DTA in any mode, including
on-line data communication, shall be permissible up to 50 per cent of FOB value of
exports and/or 50 per cent of foreign exchange earned, where payment for such services
is received in free foreign exchange.

(h) By-products included in the LOP/LOI may also be sold in the DTA subject to
achievement ofNFEP and on payment of applicable duties within the overall entitlement
of paragraph (b) above. Sale of by-products by units not entitled to DTA sales or beyond
the entitlements shall also be permissible on payment of full duties.

Note: In the case of units manufacturing electronics hardware and software, the NFEP
and DT A sale entitlement shall be reckoned separately for hardware and
software.

(vi) Other Supplies in DT A

The following supplies in DTA shall be counted towards fulfilment ofNFEPIEP:

(a) Supplies effected in DTA in terms of paragraph 8.2 of the Policy.

(b) Supplies effected in DT A against payment from the Exchange Earners Foreign
Currency (EEFC) Account of the buyer in the DT A or against foreign exchange
remittance received from overseas.

(c) Supplies to other EOUIEPZIEHTP/STP units provided that such goods are
permissible for procurement in terms of paragraph 6.2 of the Policy.

(d) Supplies made to private bonded warehouses set up under paragraph 2.39 of the
Policy and/or under Section 65 of the Customs Act.

(e) Supply of goods against special entitlement of duty free import of goods.

(f) Supply of goods to Defence and internal security forces, foreign

missions/diplomats provided they are entitled for duty free imports of such items in
terms of general exemption notification issued by Ministry of Finance.

(g) Supply of services (by services units) relating to exports paid for in free foreign
exchange or for such services rendered in India which are otherwise considered as
having been paid for in free foreign exchange by RBI.

(h) Supplies of Information Technology Agreement (ITA-I) items, provided that the
items are manufactured in the unit and attract zero rate of basic customs duty.

157
(vii) Export through 'status holder

An EOU/EPZIEHTP/STP unit may export goods manufactured by it through a

merchant exporter/status holder recognized under this Policy or any other
EOUIEPZIEHTP/STP/SEZ unit.

(viii) Samples

Procedure for export/supply of samples by EOU/EPZIEHTP/STP units is given in

paragraph 6.11 of the Handbook Vol-I of Export Import Policy 2002-07.

(ix) Entitlement for supplies from the DTA

(a) Supplies from the DTA to EOUIEPZIEHTP/STP units will be regarded as

"deemed exports" and the DTA supplier shall be eligible for the relevant entitlements
under paragraph 8.3 of the Policy besides discharge of EP if any, on the supplier. In
addition the EOU/EPZ/EHTP/STP units shall be entitled to the following: -

i) Reimbursement of Central Sales Tax.

ii) Exemption from payment of Central Excise duty on all goods as per
entitlement under Paragraph 6.2 of the Policy

iii) Reimbursement of Central Excise duty paid on bulk tea procured from
licenced auction centres by the Development Commissioner of concerned Zones
so long as levy on bulk tea in this regard is in force.

iv) Reimbursement of duty paid on fuels procured from domestic oil

companies, by the Development Commissioner of the concerned Zones as per the
rate of Drawback notified by the Directorate General of Foreign Trade from time
to time.

(b) Supplier of cut and polished diamonds, precious and semi-precious stones.
synthetic stones and processed pearls from DT A to EOU/EPZ units shall be eligible for
grant of Replenishment Licenses at the rates and for the items mentioned in Appendix 13
of the Handbook (V ol.I) ibid.

The entitlements under paragraph (a) (i) and (ii) above shall be available provided
the goods supplied are manufactured in India.

(Authority: - Export Import Policy 2002-2007)

(x) Exemptions from duty through notifications

Central Excise duty is leviable on goods cleared for Domestic Tariff Area
(known as DT A Sales) as per notifications issued from time to time. A list of applicable
notification as on date (December 2002) are given in Annexure 18.1.

18.2 Other ActlRules concerning Central Excise

1. Indian Contract Act. 1872
2. General Clauses, 1897
3. Sale of Goods Act, 1930

158
4. Provisional Collection of Taxes Act, 1931
5. Coffee Act, 1942
6. Rubber Act, 1947
7. Factories Act, 1948
8. Tea Act, 1953
9. Medicinal and Toilet Preparation (Excise Duties) Act, 1955
10. Companies Act, 1956
11. Additional Duties of Excise (Goods of Special Importance) Act, 1957
12. Sugar Export Promotion Act, 1958
13. Sugar (Special Excise Duty) Act, 1959
14. Textile Committee Act, 1963
15. Limitation Act, 1963
16. MRTP (Monopolies and Restrictive Trade Practices) Act, 1969
17. Oil Industry Development Act, 1974
18. Tobacco Cess Act, 1975
19. Beedi Workers Welfare Cess Act, 1976
20. Standard Weight and Measures Act, 1976
21. Levy Sugar Price Equalisation Fund Act, 1976
22. Additional Duties of Excise (Textile and Textile Articles) Act, 1978
23. Central Excise Laws (Amendment and Validation) Act, 1982
24. Sugar Cess Act, 1982
25. Sugar Development Fund Act, 1982
26. Jute Manufactures Cess Act, 1983
27. Jute manufactures Cess Rules, 1984
28. Automobile Cess Rules, 1984
29. Central Duties of Excise (Retrospective Exemption) Act, 1986
30. Consumer Welfare Fund Rules, 1992
31. Customs and Central Excise Duties Draw Back Rules, 1995
32. Central Excise Valuation (Determination of Price of Excisable Goods) Rules,
2000
33. Central Excise (Removal of Goods at Concessional Rate of duty for Manufacture
of Excisable Goods) Rules, 2001
34. Central Excise (Settlement of Cases) Rules, 2001
18.3 Services provided by various agencies covered under the Service Tax

Service tax on specified services provided by the service providers to the

customers was introduced through Finance Act, 1994. A list of specified services with
effective dates is given in the table appended: -

Table

S. Name of the Service Service Tax Notification No.

No. levied from
1. General insurance service 01.07.l994 1/94-S.T., dated 28.06.1994
2. Stock Broker's service 01.07.l994 1/94-S.T., dated 28.06.1994
3. Telephone services 01.07.1994 1/94-S.T., dated 28.06.1994
4. Advertising agency's services 01.11.1996 6/96-S.T., dated 31.10.1996

159
 5. Courier services 01.11.1996 6/96-S.T., dated 31.10.1996

6. Pager Services 01.11.1996 6/96-S.T., dated 31.10.1996

7. Air travel agent's services 01.07.1997 19/97 -SoT., dated 26.06.1997

8. Mandap Keeper's services 01.07.1997 19/97-S.T., dated 26.06.1997

9. Tour Operator's service 01.09.1997 37/97-S.T., dated 22.08.1997

10. Customs house agent's service 15.06.1997 17/97 -SoT., dated 06.06.1997
11. Steamer Agent's service 15.06.1997 17/97-S.T., dated 06.06.1997
12. Consulting engineer's service 07.07.1997 23/97-S.T., dated 02.07.1997
13. Manpower recruitment 07.07.1997 23/97-S.T., dated 02.07.1997
agency's services (placement
services)
14. Clearing and forwarding agent's 16.07.1997 26/97-S.T., dated 11.07.1997
service
15. Rent a cab scheme operator's 16.07.1997 26/97 .s.T., dated 11.07.1997
serVIces
16. Goods transport operator's -- Discontinued with effect from
services 02.06.1998 vide notification
No.49/98 dated 02.06.1998
17. Outdoor caterer's services -- Exempted vide notification
No.49/98-S.T., dated
02.06.1998
18. Pandal or Shamiana -- -do-
contractor's services
19. Architect's services 16.10.1998 53/98-S.T., dated 07.10.1998
20. Chartered Accountant's 16.10.1998 53/98-S.T., dated 07.10.1998
services
21. Company Secretary's service 16.10.1998 53/98-S.T., dated 07.10.1998
122. Cost & Works Accountant's 16.10.1998 53/98-S.T., dated 07.10.1998
i
[ services j
i
23. Credit rating agency's services 16.10.1998 53/98-S.T .. dated 07.1 0.1998 ~
24. Interior decorator's service 16.10.1998 53/98-S.T., dated 07.10.1998 I
!
25. Management Consultant's 16.10.1998 53/98-S.T., dated 07.10.1990 ,
I

services ___
---.l
I

26. Market Research Agency's 16.10.1998 53/98-S.T.. dated 07.1 O.199R ,

services ----I
I
I

Mechanised Slaughter House's 16.10.1998 , 53/98-S.T .. dated 07.10.]998 I

27.
!
services Discontinued vide Notification i

No.2/2000-S.T.. dated I
I
01.03.2000 ~

160
28. Real Estate Agent 16.10.1998 53/98-S.T., dated 07.10.1998
29. Security Agency's service 16.10.l998 53/98-S.T., dated 07.10.1998
30. Underwriter's services 16.10.1998 53/98-S.T., dated 07.10.1998
31. Banking and other financial 16.07.2001 4/2001-S.T., dated 09.07.2001
services & 7/2003-S.T., dated
20.06.2003
32. Broadcasting service 16.07.2001 4/2001-S.T., dated 09.07.2001
33. Convention service 16.07.2001 4/2001-S.T., dated 09.07.2001
34. Facsimile service 16.07.2001 4/2001-S.T., dated 09.07.2001
35. Insurance auxiliary service 16.07.2001 412001-S.T., dated 09.07.2001
& 8/2002-S.T., dated
01.08.2002

36. Leased circuit services 16.07.2001 4/2001-S.T., dated 09.07.2001

37. Authorised service stations 16.07.2001 412001-S.T., dated 09.07.2001
services for Motor Car and two
wheelers
38. Online information and 16.07.2001 4/2001-S.T., dated 09.07.2001
database access or retrieval
service through computer
networks
39. Photography service 16.07.2001 4/2001-S.T., dated 09.07.2001 I
40. .Scientific and technical 16.07.2001 412001-S.T., dated 09.07.2001
consultancy service I
41. Sound recording service 16.07.2001 4/2001-S.T., dated 09.07.2001 I
42. Telegraph service 16.07.2001 412001-S.T., dated 09.07.2001
43. Telex service 16.07.2001 4/2001-S.T., dated 09.07.2001
44. Video tape production agency's 16.07.2001 4/2001-S.T., dated 09.07.2001
service
45. Other port/Port services 16.07.2001 412001-S.T., dated 09.07.2001
& 712003-S.T. dated 20.06.2003
46. Beauty treatment services 16.08.2002 8/2002-S.T., dated 01.08.2002
47. Cable services 16.08;2002 8/2002-S.T., dated 01.08.2002
48. Cargo handling service 16.08.2002 8/2002-S.T., dated 20.06.2003
49. Dry cleaning services 16.08.2002 8/2002-S.T., dated 01.08.2002
50. Event management service 16.08.2002 8/2002-S.T., dated 01.08.2002
51. Fashion designing services 16.08.2002 8/2002-S.T., dated 01.08.2002
52. Health and fitness service 16.08.2002 8/2002-S.T., dated 01.08.2002
53. Rail travel agent's services 16.08.2002 8/2002-S.T., dated 01.08.2002

161
54. Storage and warehousing 16.08.2002 -do-
service
55. Business auxiliary services 01.07.2003 712003-S.T., dated 20.06.2003
56. Commercial Training or 01.07.2003 712003-S.T., dated 20.(}6.2003
coaching services
57. Commissioning or installation 01.07.2003 7/2003-S.T., dated 20.06.2003
services
58. Franchise services 01.07.2003 7/2003-S.T., dated 20.06.2003
59. Internet access services 01.07.2003 712003-S.T., dated 20.06.2003
60. Maintenance or repair services 01.07.2003 712003-S.T., dated 20.06.2003
61. Technical inspection 01.07.2003 7/2003-S.T., dated 20.06.2003
certification services I
62. Technical testing and analysis 01.07.2003 7/2003-S.T., dated 20.06.2003
services I

162
 Annexure 18.1

EXEMPTION NOTIFICATIONS IN RESPECT OF UNITS IN FREE TRADE

ZONES AND 100 PER CENT EXPORT ORIENTED UNITS

I ~~. I Notification No. I SUbject .

1. 124/84-C.E., dated 26.05.1984 Exemption notification not to apply to goods

produced in a hundred per cent export-oriented
undertaking
2. 146/89-C.E., dated 19.05.1989 Exemption to excisable goods brought to any
gem and iewelerv units set up in SEEPZ
3. 147/89-C.E., dated 19.05.1989 Exemption to excisable capital goods
components etc. brought for use in the
manufacture of iewellerv for export
4. 2212003-C.E., dated 31.03.2003 Exemption to goods brought into
EOUIEHTP/STP units
5. 2312003-C.E., dated 31.03.2003 Exemption to goods produced ill
EOUIEHTP/STP
6. 2412003-C.E. dated 31.03.2003 Exemption to specified goods produced m
EOU

163
 SECTION 11

CENTRAL EXCISE
RECEIPT AUDIT

164
 CHAPTER-19

AUDIT OF RECEIPTS

19.1 Introduction

Audit of receipt is one of the most important functions assigned to the

Comptroller and Auditor General of India. Even though the history of receipt audit in
this country can be traced to 1913, it really took concrete shape in the early sixties, and
during the last four decades, it has attained high stature and gained recognition as a
positive arm of supreme Audit Institution of India, contributing in large measure to the
public exchequer, by way of checking losses of revenue, safeguarding against laxity in
tax administration, and more importantly suggesting improvements to tax procedures and
even fiscal statutes.

Audit of receipts is extensive and covers, among other things, almost all tax
statutes, both at the Union and State level. Tax receipts constitute both direct and
indirect taxes. Non-tax receipts cover various items such as interest receipts, mining
receipts, rental income, forest receipts etc. which are also subjected to audit. In the case
of the Union Government, most of its tax receipts arise from administration of Income
Tax Act, 1961, Central Excise Act, 1944, Indian Customs Act 1962 etc. Under the
division of powers enshrined in the Indian constitution, States are empowered to legislate
in certain specified areas, and raise revenue mostly from sales tax, motor vehicles tax,
registration and stamp duty, state excise duty etc.

The audit of receipts in India thus covers the receipts of both Union and the
States. It is conducted through checking of individual assessment records as well as
verifying the systems and procedures of all aspect of tax administration. The provisions
of the CAG's CDPC) Act, 1971 vest unqualified discretion with the C & AG in deciding
the scope, quantum and manner of audit. The provision of the CAG's CDPC) Act, also
vest in the C & AG the authority to secure access to any accounts, books, papers and
other documents which deal with or form the basis of or are otherwise relevant to the
transactions to which his duties in response of Audit extend.

19.2 Audit Mandate

Prior to CAG's CDPC) Act, 1971, the audit of receipt was done on consent basis' .

•Auditor General's Rules, 1926 (Extracts)

"12. The Auditor General shall, if so required by the Governor General in Council: -
(1) Arrange for the audit of the accounts of the receipts of revenue of any government department,
the accounts of any public or quasi-public body, or any other accounts, although they may not relate
directly to the receipt and expenditure of government moneys."
The Government oflndia (Audit and Accounts) Order, 1936 (Extracts)
"13(2) The Auditor General may with the approval of, and shall if so required by, the Governor
General or the Governor of any province audit and report on: -
(i) the receipts of any department ofthe Federation or, as the case may be, of the Province.
The Governor General or the Governor of a Province may, after consideration with the Auditor
General make regulations with respect to the conduct of audits under this sub-paragraph."

165
19.2.1 Constitution of India (1950)

The Comptroller and Auditor General of India who is the head of the Supreme
Audit Institution of India derives his duties and powers mainly from Article 149 to 151
of the Constitution of India.

19.2.2 C&AG (DPC) Act, 1971

The Comptroller and Auditor General (Duties, Powers and Conditions of Service)
Act, 1971 came into force from 15 December 1971, Section 16 of that Act provides: -

"It shall be the duty of the Comptroller and Auditor General to audit all receipts
which are payable into the Consolidated Fund of India and of each State and of each
Union Territory having a Legislative Assembly and to satisfy himself that the rules and
procedures in that behalf are designed to secure an effective check on the assessment,
collection and proper allocation of revenue and are being duly observed and to make for
this purpose such examination of the accounts as he thinks fit and report thereon."

With the passing of this Act, it has become the statutory responsibility of the
Comptroller and Auditor General of India to audit receipts of the Union and the States.

19.2.3 INTOSAI: LIMA DECLARATION 1977

(i) Audit department is empowered to audit the collection of taxes as extensively as

possible and, in doing so, to examine individual tax files.

(ii) Tax audits are primarily audits for legality and regularity, however, when
auditing the application of tax laws. Audit should also examine the system and
efficiency of tax collection, the achievement of revenue targets, and if appropriate,
propose improvements to the legislative body.

19.2.4 ASSOSAI-BALI-DECLARATION 1988

Audit mandate of many Supreme Audit Institutions (SAIs) provide generally for
the audit of public accounts which includes [Link] such as tax receipts. However, SAIs
should seek clear and specific legal authority for undertaking comprehensive tax audits
in conformity with the relevant provisions of LIMA declaration on auditing receipts

19.3 Statutory audit

The audit of receipt conducted by the Indian Audit & Accounts department is
statutory audit and is done at three levels.

(i) Headquarter audit

Scrutiny of Act, Rules, aotifications and circulars and instructions issued by the
Government of India, Central Board of Excise and Customs is done by the INDT wing of
the office of the C & AG.

166
(ii) Concurrent audit

This is done by the receipt audit parties of the office of the Principal Accountant
General (Audit)/Accountant General (Audit)IPrincipal Directors of Audit (Central) in the
office of the Chief Accounts Officer of Commissioners of Central Excise.

(iii) Local audit

These are conducted by the parties of the Central Excise Receipt Audit Wing of
each Principal Director of Audit (Central) or Accountant General's (Audit) office. The
local audits cover audit of: -

(a) Central Excise range officeslDivisional offices/Commissionerate offices

(b) Factories and warehouses

(c) Refunds under the special procedure/payments by cheques

19.4 ~eral principles of receipt audit

19.4.1 Responsibility of the department to collect revenue /'

It is primarily the responsibility of the departmental authorities to see that all

receipts due to Government are correctly and properly assessed, realised and credited to
Government account. Audit should also make such examination as it thinks fit with
respect to the correctness of the sums brought to account.

19.4.2 Audit to verify that sums due are regularly recovered /'

While the audit of tax receipts is, in most cases, taken up separately, other
departmental receipts are audited along with audit of the expenditure of the
department/scheme. Even in respect of departments where a detailed audit of receipt
has not been possible, it should be verified in audit in so far as it is possible from the
accounts that (a) sums due are regularly recovered and checked against demand and (b)
sums received are duly brought to credit in the accounts. .

19.4.3 Audit may suggest appropriate improvement in procedure /

In the audit of receipts, it would be necessary in case of a department which is a

receiver of public money to ascertain what checks are imposed to ensure the prompt
detection and investigation of irregularities, double refunds, fraudulent or forged refund
vouchers or other loss of revenue through fraud, error or willful omission or negligence
to levy or collect taxes or to make refunds') Audit may suggest any appropriate
improvements in procedure, for instance that in a particular case a test inspection should
be carried out by comparin ~ sample set of counterfoils of receipts with receipts actually
in the hands of the tax payers or other debtors, the results of such an investigation being
made available to audit.

19.4.4 Audit regulated mainly with reference to statutory provisions V

Audit of receipts will be regulated mainly with reference to the statutory
provision and as judicially interpreted or financial rules or orders which may be

167
applicable to the particular receipts involved. If the test check reveals any defect, lacuna
or loopholes in such rules, the advisability of an amendment should be brought to notice.

19.4.5 Audit not to substitute Revenue authorities /

Audit department should not in any way substitute itself for the Revenue
authorities in the performance of the statutory duties, but Audit should satisfy itself that
legality and regularity are observed in individual assessments and in general that the
departmental machinery is sufficiently safeguarded against error and fraud and that so far
as can be judged, the procedure is calculated to give effect to the requirements of law.

19.4.6 Audit not to review judicial decision /

It is not the duty of Audit to review a judicial decision nor does Audit normally
review the judgement exercised by officers in individual cases in areas purely falling in
their discretion. But it must be recognised that an examination of such cases is an
important factor in judging the effectiveness of assessment, recovery procedures etc.
Where the information available on an individual case is insufficient to enable the audit
to ascertain how the requirements of the law have been complied with, Audit ma
consider it its duty to ask for any further information to enable it to form the judgement
required of it as to the effectiveness of the system.

19.4.7 Department to set right the errors

Any obvious error in computation of assessment, etc. can be pointed out in audit
leaving it to the administrative authorities to set right the errors by adopting such cour e
of action as they may consider appropriate. .
-:
19.4.8 Audit to check deviation from prescribed norms

Where any financial rule or order applicable to the case prescribes the scale or
periodicity of recoveries, it will be the duty of the Audit to see as far as possible that
there is no deviation, without proper authority, from such scale or periodicity. When this
check cannot be exercised centrally a test audit may be conducted by local inspections.
the aim being to secure apart from due realisation of particular debts that disregard of
rules or defects of procedure are not such as to lead to leakage of revenue.

19.4.9 Audit to ensure that adequate regulation exists for proper accountal of /.
Government revenue

Ordinarily, Audit will see that the internal procedure adequately secures correct
and regular accounting of demands, collections and refunds, that no amounts due to
Government are left outstanding on its books without sufficient reason and that the
claims are pursued with due diligence and are not abandoned or reduced except with
adequate justification and with proper authority. Audit should carefully watch any
outstanding dues and suggest to the departmental authorities any feasible means for their
recovery. Whenever any dues appear to be irrecoverable, order for their waiver and
adjustmentshould be SOUgh:)

168
-'19.4.10Audit will have access to all records

Member of the audit department will have access to relevant papers and records
of the Central Excise department and of such records as are authorised to be scrutinised
under rule 22 (3) of the Central Excise Rules, 2001 in regard to accounts maintained by
assessees working under the 'Self Removal Procedure', when dealing with general
questions on examining individual cases in their effect on the general question. But they
should observe secrecy in the same way as officers of the Central Excise department.

In the course of scrutiny of records, Audit is entitled to make such queries and
observations and to call for such records, statements, returns and explanations in relation
to them as it may consider necessary in the interest of proper discharge of its duties.

Under sub-section (2) of section 18 of the CAG's (DPC) Act, 1971 it is statutory
obligation of the person in-charge of the office or the department, the accounts of which
are to be inspected/audited by the functionaries of the C & AG, to afford all facilities for
such inspection and comply with requests for information in complete form as possible
and with all reasonable expedition.

19.4.11 Audit shoul ensure that internal checks are adequate .."......
------ -----. - --
(AUdit is to satisfy itself by such test-checks, as it may consider necessary that the
internal procedure adequately provides for and actually secureS)-

(i) the collection and utilisation of data necessary for the computation of
demand or refund under the law;
(ii) the prompt raising of demand on tax-payers in the manner required by
law;
(iii) the regular accounting of demands, collections and refunds;
(iv) the correct accounting and allocation of collection and their credit to the
consolidated fund;
(v) that proper safeguard exist to ensure that there is no omission or
negligence to levy or collect taxes, or to issue refunds;
(vi) that claims on tax payers are pursued with diligence and. are not
abandoned or reduced except with adequate verification and proper
authority;
(vii) that double refunds, fraudulent or forged refund orders, or other losses of
revenue through fraud, default or mistake are promptly brought to light
and investigated;
(viii) that INTOSAI guidelines for internal control standards for the public
sector have been referred t':)

69
 CHAPTER 20

AUDITING STANDARDS

20.1 Introductory

Auditing Standards prescribe the norms of principles and practices, which the
auditors are expected to follow in the conduct of audit. They provide minimum guidance
to the auditor that helps determine the extent of auditing steps and procedures that should
be applied in the audit and constitute the criteria or yardstick against which the quality of
audit results are evaluated.

The auditing standards of the International Organisation of Supreme Audit

Institutions (INTO SAl) have been suitably adapted with due consideration of the
Constitution of India, relevant Statutes and rules for the auditing standards for the
Supreme Audit Institution of India (SAl).

20.2 INTOSAl's Auditing standards

The general framework of the auditing standards for the International

Organisation of Supreme Audit Institutions (INTO SAl) has been deduced from the Lima
and Tokyo declarations, the statements and reports adopted by INTO SAl in various
congresses, and the report of the United Nations Expert Group Meeting in Public
Accounting and Auditing in Developing Countries. The INTOSAI's auditing standards
consist of four parts.

(a) The Basic postulates

(b) The General standards

(c) The Field standards

(d) The Reporting standards

INTO SAl has developed these standards to provide a framework for the
establishment of procedures and practices to be followed in the conduct of an audit,
including audits of computer-based systems. They should be viewed in the particular
constitutional, legal and other circumstances of the Supreme Audit Institution (SAl).

20.3 The Auditing standards by C & AG of India

20.3.1 The CAG's Auditing standards are broadly grouped under four categories

(i) The Basic postulates; (ii) The General standards; (iii) The Field standards; and
(iv) The Reporting standards.

20.3.2 Basic postulates

The basic postulates for auditing standards are basic assumptions, consistent
premises, logical principles and requirements which help in developing auditing
standards and serve the auditors in forming their opinions and reports, particularly in
cases where no specific standards apply.

170
20.3.3 General standards

The general auditing standards describe the qualifications of the auditor and the
auditing institution so that they may carry out the tasks related to field and reporting
standards in a competent and effective manner.

The general auditing standards include standards, which apply both to the
auditors and to the audit institutions, and standards, which apply only to audit
institutions. The standards common to auditors and audit institutions are:

(a) The auditor and the audit institutions must be independent.

(b) The auditor and the audit institutions must possess the required competence.

Cc) The auditor and the audit institutions must exercise due care and concern in
complying with these auditing standards. This embraces due care in planning
specifying, gathering and evaluating evidence, and in reporting findings, conclusions and
recommendations.

The general auditing standards for the audit institutions are that they should adopt
policies and procedures to

(a) Recruit personnel with suitable qualifications.

(b) Develop and train employees to enable them to perform their tasks effectivel
and to define the basis for the advancement of auditors and other staff.

Cc) Prepare manuals and other written guidance notes and instructions concerning the
conduct of audits. .

(d) Support the skills and experience available within the audit institutions, and
identify the skills which are absent; provide a good distribution of skills to auditing tasks
and assign a sufficient number of persons for the audit; and have proper planning and
supervision to achieve its goals at the required level of due care and concern. .

Ce) Review the efficiency and effectiveness of internal standards and procedures.

20.3.4 Field standards

The purpose of field standards is to establish the criteria or overall framework for
the purposeful, systematic and balanced steps or actions that the auditor has to follow.
These steps and actions represent the rules of investigation that the auditor, as a seeker of
audit evidence, implements to achieve a specific result.

The field standards establish the framework for conducting and managing audit
work. They are related to the general auditing standards, which set out the basic
requirements for undertaking the tasks covered by the field standards. They are also
related to the reporting standards, which cover the communication aspect of auditing, as
the results from carrying out the- field standards constitute the main source for the
contents of the opinion or report.

The field standards applicable to all types of audit are:

171
(a) The auditor should plan the audit in a manner, which ensures that an audit of high
quality is carried out in an economic, efficient and effective way and in a timely manner.

(b) The work of the audit staff at each level and audit phase should be properly
supervised during the audit; and a senior member of the audit staff should review
documented work.

(c) The auditor, in determining the extent and scope of the audit, should study and
evaluate the reliability of internal control.

(d) In conducting regularity (financial) audits, a test should be made of compliance

with applicable laws and regulations.

(e) Competent, relevant and reasonable evidence should be obtained to support the
auditor's judgement and conclusions regarding the organisation, program, activity or
function under audit.

(f) In regularity (financial) audit and in other types of audit when applicable.·
auditors should analyse the financial statements to establish whether acceptable
accounting standards for financial reporting and disclosure are complied with. Analysis
of financial statements should be performed to such a degree that a rational basis i
obtained to express an opinion on financial statements.

20.3.4 The Reporting standards

The Reporting standards set down the framework for reporting the results of audit
concisely, with accuracy, objectivity and clarity and in a constructive manner and for
appropriate, conclusive and preventive follow up action.

(i) Local Audit Report

(a) Self explained words

On the completion of each audit assignment, the Auditor should prepare a written
report setting out the observations and conclusions in an appropriate form; its content
should be easy to understand and free from vagueness or ambiguity, include only
information which is relevant and supported by sufficient and competent audit evidence
and be independent, objective, fair, complete and accurate, constructive and concise as
the subject-matter permits.

(b) Timeliness

The audit report should be made available promptly to be of utmost use to all
users, particularly to the auditee organisations and/or Government who have to take
requisite action.

(ii) Follow up of Audit Reports

Adequate, prompt and proper follow up action by the entity on, and in the light of
audit conclusions projected will enhance the effectiveness of audit and promote public
accountability.

Note: For further details - Auditing Standards (2nd edition - 2002) issued by the
Headquarters may be consulted.

172
 CHAPTER-21

ORGANISATIONAL SET-UP OF AUDIT

(CENTRAL EXCISE RECEIPT AUDIT WING)

21.1 Headquarter's office

21.1.1 Receipt Audit Wing (Headquarters)

At the headquarters at New Delhi, there are three wings which assist the C & AG
in overseeing the audit of receipts viz. Direct tax, Indirect tax (INDT) and State receipts.
Principal Director (INDT) heads the INDT wing and reports to C & AG through
Deputy/Addl. Dy. C & AG as the case may be. The Principal Director (INDT) functions
as Principal Audit Officer and is vested with the responsibility of preparing annual audit
report, which after approval of C & AG is submitted to the President of India for being
laid before both Houses of Parliament. Principal Director (INDT) is assisted by the team
of Director (CX), Sr. Administrative Officers and sectional staff in discharging duties.

21.1.2 Functions assigned to headquarters

(i) Preparation of audit report

Draft paras on Central Excise and Service tax received from the field office are
vetted at headquarters and issued as draft audit paragraphs to the Ministry of Finance for
their comments. Based on the Ministry's comments to the individual draft paragraph.
Audit Report (INDT) is prepared. The Audit Report duly signed by Pr. Director ( DT
and countersigned by Comptroller and Auditor General of India is submitted to th
President of India through Ministry of Finance, who causes them to be laid on table of
both the houses of Parliament every year preferably during budget session.

(ii) Scrutiny of notifications, circulars and amendments issued by the Ministry'

of Finance/CBEC

The notifications, instructions and circular letters issued by the Central Board of
Excise and Customs are scrutinised by the staff in the Office of the Comptroller and
Auditor General. Objections are raised in relation to individual failures attributable to
defects in the notifications/circulars.

(iii) Coordination work

CERA wing at headquarters coordinates the Central Excise audit work in the
field audit offices. This includes issue of directions/instructions for audit planning,
execution and reporting besides determining periodicity of audit, formation of CERA
parties etc.

(iv) Guidance to field offices

Directions and guidelines are issued by the headquarters office from time to time
on the areas of audit for special emphasis as also guidelines for highlighting particular
aspect in draft paragraphs.

173
 On technical points guidance is also given by headquarters office in response to
references seeking advice from field offices.

(v) Systems review

Topics for review type of draft paragraphs on systems defects and recurring
failures are identified and guidelines issued for undertaking the systems review on the
subject/issue and excisable commodity involved. Details of commodities/topics on
Central Excise matters covered in Reviews featured in the Audit Reports are given in
Annexure 21.1.

(vi) Digest of important and interesting cases

A half yearly digest for period ending so" 'June and 31 st December every year of
important and interesting cases in Central Excise and Service Tax noticed in CERA, is
also prepared and circulated by headquarters after compilation of material received from
field offices. The material for the digest would not include objections which had already
been included in the Audit Report and objections which have not been accepted by the
department.

(vii) Participation in conferences of Commissioners of Central Excise

Pr. Director (INDT) may consider attending (by invitation) some of the meeting
of the conferences of Commissioners of Central Excise convened by the Central Board
of Excise and Customs. In such conferences, audit points are discussed. Minute of
such meetings are invariably sent to the field audit offices for their guidance.

(viii) Tripartite meetings

Differences of opinion on interpretation of legal points ansmg between the

CAG's office and Ministry of Finance, on points of law involved in audit objections. are
resolved in Tripartite meetings held in the Ministry of Law. The advice of Ministry of
Law is generally accepted though in some cases opinion of the Attorney General may be
sought.

(ix) Technical inspection

The Director of Inspection in CAG's office, generally looks into the accuracy of
the preparations of returns and registers in the headquarters section of the field audit
offices. Technical inspections of CERA wings of field offices every year are conducted
on rotational basis by headquarter's inspection team so as to enable the field offices to
improve their working. Pr. Director (INDT)/Director (CX) may also pay visits to the
field offices. During visits to the field audit offices, the Pr. Director generally discusses
with the concerned Accountant General/Principal Director about the state of audit,
pursuance of objection and preparation of material for audit report. Guidance on
technical, administrative and legal aspects of the receipt audit work is also given by
headquarter's team.

(x) Association with Public Accounts Committee

After the report is laid on table of both the houses of Parliament, the Public
Accounts Committee takes up the report for discussion, identify the

174
topics/issues/paragraphs for oral discussion. The headquarters office remain associated
with the Public Accounts Committee during process of deliberations. Details of
paragraphs discussed by the Public Accounts Committees and their recommendations
contained in the reports submitted to the Parliament are given in Annexure 21.2.

(xi) Organising seminars and workshops

Headquarters office organises periodical seminars/workshop on Central Excise

matters. The field offices are also entrusted with the work of organising regional
seminars on various issues identified by headquarters office. The participation of
headquarters is also ensured therein.

21.2 Field formations

The audit of receipt is conducted in the field under the overall supervision of
Accountants General (Audit)/Pr. Directors of Audit (Central) having State wise
jurisdictional charge of the area under Central Excise Commissionerates. The important
findings are reported by them to the headquarters at New Delhi where after technical
scrutiny and screening selected material is included in the Audit Report.

In Accountant General's office, CERA wing functions under the charge of Group
Officer supported by field inspection parties each consisting of three/four members. The
field parties visit the Commissionerate offices, Divisional Offices, Range Office .
Offices of the Chief Accounting Officers etc. according to the prescribed time schedule
and conduct audit of receipts. The audit of expenditure relating to these offices is al 0
simultaneously conducted by the CERA parties. Since Central Excise assessments are
based on 'self assessment procedure' audit teams have to visit the assessee"
(Manufacturer's) premises to carry out audit.

There are 23 field offices having jurisdiction over the area assigned to 93 Central
Excise Commissionerates (Details of jurisdiction given in Annexure21.3).

175
 Annexure 21.1

Details of "Reviews" featured in the Report of the Comptroller and Auditor

General of India on Indirect Taxes - Central Excise and Service Tax

SI. Para No. of audit Report Subject

No.

1. 2.72 of 1985-86 (No.5 of 1987) Inordinate delay by P.S. Banks In remitting Union
excise duty collections

2. 2.75 of 1985-86 (No. 5 of 1987) Delay in finalisation of provisional assessments

3. 2.76 of 1985-86 (No.5 of 1987) Delay in vacation of stay orders by courts

I
4. 2.04 1986-87 (No.5 of 1988) Price list
I
5. Review 1986-87 ([Link] of 1988) Working of Modvat scheme (separate report)

6. 1.03 1987-88 (No.5 of 1989) Adjudication of cases

7. 1.03 1988-89 (No.5 of 1990) Man made filaments and man made staple fibers and
product thereof

8. 1.04 1988-89 (No.5 of 1990) Clearance of goods under chapter X procedure for
industrial use

9. 1.05 1988-89 (No.5 of 1990) Irregular refunds

10. 1.02 of 1989-90 (NoA of 1991) Iron and Steel products

11. 1.03 of 1989-90 (NoA of 1991) Exemption to SSI units

I
12. 1.04 of 198~-90 (NoA of 1991) Submission and finalisation of Monthly Return
(RT.12)

13. 1.03 of 1990-91 (NoA of 1992) Valuation of excisable goods

~ 1.04 of 1990-91 (NoA of 1992) Plastic and articles thereof

15. '1.02 of 1991-92 (NoA of 1993) Delay in finalisation and collection of demands

16. 1.02 of 1991-92 (NoA of 1993) Rubber and articles thereof

17. Review of 1991-92 (No. \3 of 1993) Scheme of rewards to informers and government
servants

18. 2.22 of 1992-93 (NoA of 1994) System defects in the working of Chief Accounting
Officers
-
19. 2.23 of 1992-93 (NoA of 1994) System of Internal audit department of excise

20. 1.03 of 1993-94 (NoA of 1995)' Modvat scheme

21. 1.02 of 1994-95 (NoA of 1996) Pharmaceutical products

176
22. 1.02 of 1994-95 (NoA of 1996) Provisional assessments

23. 2 of 1995-96 ([Link] of 1997) Invoice based assessments

24. 3 of 1995-96 ([Link] of 1997) Paper and paper board

25. 2 of 1996-97 ([Link] of 1998) Modvat credit on capital goods

26. 3 of 1996-97 (No.11 of 1998) Soaps and detergents

27. 2 of 1997-98 (No.11 of 1999) Delay in finalization and collection of demands

28. 2 of 1998-99 (No.11 of2000) Scheme for levy of duty on the basis of capacity of
production on certain Iron and Steel products
I

29. 12 of 1998-99 (No.11 of2000) A system appraisal on Service Tax

30. 2 of 1999-2000 (No. I I of2001) KarVivad Samdhan Scheme

I
31. 2 of2000-200 I (No.11 of2002) Duty on processed fabrics by independent textile
processors

32. 2 of2001-2002 (No.11 of2003) Valuation of excisable goods under Section 4A

(Maximum Retail Price)

33. 3 of2001-2002 (No.l1 of2003) Handl ing of appeal cases in Central Excise department

34. 4 of2001-2002 (No.11 of2003) Time and manner of payment of duty

35. 5 of2001-2002 (No.11 of2003) Working of recovery cells

36. 2 of2002-2003 (No. I I of2004) Determination of assessable under new Section 4

(Transaction Value)

37. 3 of2002-03 (No. I I of2004) Call book

38. 14 of2002-03 (No. I I of2004) Service tax on advertisement and courier services

177
 Annexure 21.2
Details of paragraphs on Central Excise discussed by
Public Accounts Committees of Parliament

Audit Para No. PAC's PAC's Subject/Items

Report Report No. Action covered
Taken
Report

1971-72 22, 26, 28(a), 29(a), 17ih (5th ss" (6th Lok Motor Vehicles,
30, 31, 32(a), 34, 35, Lok Sabha) Sabha) Aluminum Ingot,
36, 37, 38, 40 (i), 41, Batteries,
42,45,46,47,48,49, Refrigerators and Air
50 Conditioners ,
yarn, VNE Oil.
Plywood, Refined
Diesel Oil, Chassis.
Footwear, Time
barred demand .
Merchant
manufacturer
th
1972-73 16, 17, 18,21, 22(a), 8th (6th Lok 60th (6 Lok Sugar Rebate, Co t of
32, 34, 37(a), 38, Sabha) Sabha) Collection, Fortuitous
40(a)(b),41(a)(b) benefit, Non Leaded
Petroleum, Bitumen.
Straw Board, ylon
Yarn, Plastic Quoted.
Cotton Fabric .
Controlled cloth

19 155th (5th 30th (6th Lok Aluminum (Review)

Lok Sabha) Sabha)

1973-74 24,31,32,33,34,41, 13th (6th Lok 146th (6th Yarn and Fabrics
43,55,56,75,78 Sabha) Lok Sabha) Motor Vehicle parts,
Storage of M. Oil,
Vegetable products.
rebate Hot heavy
Stock Refunds

1974-75 33, 42, 43, 45, 50, 72, 55th (6th Lok 145th(6th Match, Soft drink,
79 Sabha) Lok Sabha) Tea, Tobacco,
Vaseline, Hair, tonic,
Computer, Tyres
Cigarettes, AN,
Footwear, cosmetics

1975-76 48,90,94 so" (6th Lok 125th (6th Cigarettes, AN,

Sabha) Lok Sabha footwear, Cosmetics

178
1976-77 38(a)(b)(c) 140th (6th 6th (ih Lok Woolen Yarn, fabrics,
Lok Sabha Sabha) Shaddy yarn

37,53,60(a) 2ih (7th Lok 72nd (7th Raw Naphtha (Para

Sabha) Lok Sabha) 37)
Cement (Para 53)

1977-78 Nil Nil Nil Nil

1978-79 35,87 46th (7th Lok 71st(7th Lok Rubber products,

Sabha) Sabha) Fortuitous benefits I

77(a)(b),78 54th (ih Lok 69th (ih Lok Packing charges,

Sabha) Sabha Paper and paper
Board, Proof of
export
I
1979-80 2.12 6ih (ih Lok 140th (ih Semi finished steel
Sabha) Lok Sabha) products
I

2.1 0, 2.11, 2.16, 2.34, 84th (7th Lok zo" (8th Lok on Selected para (a)1
2.42, 2.47(a), 2.54(a) Sabha) Sabha) later the better
principle
I

2.65(b),2.29 96th (7th Lok 146th (7th Operation of time bar ,

Sabha) Lok Sabha)

2.51 108th (7th 163rd (7th Knocked dO\\TI

Lok Sabha) Lok Sabha) conditions

1980-81 2.63 158th (7th 225th (7th Related Person

Lot<Sabha) Lok Sabha)

2.08 180th (ih 14th(8th Lok . Exemption to S. .1.

Lok Sabha) Sabha) TI-68

2.69 170th (7th 9th (8th Lok Cotton fabrics, TI-19,

Lok Sabha) Sabha) 22
I
2.08, 2.10, 2.19, 2.20, 160th (7th 104th (8th Miscellaneous, on
2.23, 2.24(i), 2.25(i), Lok Sabha) Lok Sabha) selected paras
2.31 (iii), ""C)11 ,
2 ...).)
2.38(ii)(iv), 2.41 (i),
2.41(ii), 2.43(ii), 2.47 -

1981-82 2. r7Ci)(ii), 2.40 208th Ci~ 39th (8th Lok Cosmetics Boroline
Lok Sabha) Sabha) Suppression of
.. production (SOP)

2.28. 2.0 l, 2.08, 2.10, 23rd (8th Lok 70th (8th Lok Tyres and tubes
2.19, 2.20, 2.23, Sabha) Sabha)
2.24(i), 2.25(i),
2.31(iii), 2.33(ii),

179
 2.38(ii)(iv), 2.41(i),
2.41 (ii), 2.43 (ll),
2.47
th
1982-83 2.13 34th (8th Lok 138th (8 Cigarettes
Sabha) Lok Sabha)

2.50 49th (8th Lok 109th (8th SSI exemption

Sabha) Lok Sabha)

1983-84 2.68 43rd (8th Lok 82nd (8th Reduction In duty-

Sabha) Lok Sabha) Refrigerators, Tyres
& tubes

1984-85 2.15(ii) 7ih (8th Lok 113th(8th Cellulose Xnthate

Sabha) Lok Sabha)

1985-86 2.77 110th (8th 179th (8th Fraudulent

Lok Sabha) Lok Sabha) procurement of E.D.
Stamps
I

1986-87 2.04 145th (8th 36th (10th Review Para pnce

Lok Sabha) Lok Sabha) list, Fortuitous benefit I

4.58 155th (8th 42J1d(10th Fraudulent credit of

Lok Sabha) Lok Sabha) Rs.1.17 crores

Para initiated by PAC . 22nd (9th Lok 36th no" Refunds

Sabha) Lok Sabha)

1987-88 Nil Nil Nil Nil

1988-89 1.03 1561h(8th 21st (10th Review para In

Lok Sabha) Lok Sabha) fabrics

1989-90 3.22 24th (101h 68th (10th Prickly Heat Powder

Lok Sabha) Lok Sabha)
I
1.03 32nd (1oth rr" (10th SSI exemption
Lok Sabha) Lok Sabha) combined report with
Direct Tax

1990-91 3.27(i) 44th (loth 69th (loth Exemption - Motor

Lok Sabha) Lok Sabha) Vehicle

3.66(i)(ii) 53rd uo" 80th no" Non Vacation of Stay

Lok Sabha) Lok Sabha) Orders

1991-92 3.48 104th (10th 8th (l1 thLok Fraudulent Modvat

Lok Sabha) Sabha) credit - Sipani
Motors, Non levy of
cess on gas

t80
1992-93 2.22 98th (1oth 116th Report System defects m
Lok Sabha) working of Chief
Accounting Offices

1993-94 Nil Nil Nil No. para

1994-95 1.03 14th (11 th 10th (12th Provisional

Lok Sabha) 'Lok Sabha) assessment

1995-96 4.03 Ist Report 3211d Report Nycil Powder -

(131h Lok (13th Lok Different
Sabha) Sabha) , classifications of
similar product

1996-97 Nil Nil Nil Nil

1997-98 2.5 &2.6 391h Report (i) Delay m

(13th Lok recovery of
Sabha) confirmed demands

(ii) Non I
adjudication of
demand cases

1998-99 Nil Nil Nil Nil

1999-00 Nil Nil Nil Nil

181
 Annexure 21.3

Statement showing names of the field offices dealing with CERA with names of
their counterpart Commissionerate of Central Excise

SI. Name of the Accountants General (Audit)/ Name of the Commissionerate of Central'
No. Pr. Directors of Audit (Central) Excise
1. Pr. Director of Audit (Central), 1. CCE, Mumbai I
Mumbai
2. CCE, Mumbai Il
3. CCE, Mumbai III
4. CCE, Mumbai IV
5. CCE, Mumbai V
6. CCE, Thane I

7. CCE, Thane II
8. CCE, Pune I
9. CCE, Pune II

la. CCE, Pune III

11. CCE, Aurangabad
12. CCE, Belapur
13. CCE, Nasik
14. CCE, Raigarh
2. Pr. Director of Audit (Central), Kolkata 15. CCE, Kolkata I
16. CCE, Kolkata II
17. CCE, Kolkata III
18. CCE, Kolkata IV
19. CCE, Kolkata V
20. CCE, Kolkata VI
21. CCE, Kolkata VII
22. CCE, Haldia

23. CCE, Bolpur

24. CCE, Siliguri
3. Director General of Audit Central 25. CCE, Delhi I
Revenues, New Delhi

26. CCE, Delhi Il

4. Accountant General (Audit) Assam, 27. CCE, Shillong
Guwahati

28. CCE, Dibrugarh

182
5. Accountant General (Audit)-II, Andhra 29. CCE, Hyderabad I
Pradesh, Hyderabad
30. CCE, Hyderabad Il
31. CCE, Hyderabad III
32. CCE, Hyderabad IV
33. CCE, Tirupati
34. CCE, Visakhapatnarn I
35. CCE, Visakhapatnarn Il
36. CCE, Guntur
6. Pr. Accountant General (Audit)-I, 37. CCE, Ahmedabad I
Gujarat, Ahrnedabad
38. CCE, Ahrnedabad Il
39. CCE, Ahmedabad III
40. CCE, Daman
41. CCE, Rajkot
42. CCE, Bhavnagar
43. CCE, Surat I
44. CCE, Surat Il
45. CCE, Vadodara I
46. CCE, Vadodara II
47. CCE, Vapi
7. Accountant General (Audit) Bihar, 48. CCE, Patna
Patna
8. Accountant General (Audit) 49. CCE, Jamshedpur
Jharkahand, Ranchi
50. CCE, Ranchi
9. Accountant General (Audit), Haryana, 51. CCE, Delhi III
Chandigarh
52. CCE, Delhi IV
53. CCE, Rohtak
54. CCE, Panchkula
10. Accountant General (Audit), Himachal 55. CCE, Chandigarh (HP area)
Pradesh, Shirnla
11. Accountant General (Audit), Jamrnu & 56. CCE, J & K (w.e.f. 01.01.2004)
Kashmir, Srinagar
12. Accountant General (Audit)-II, 57. CCE, Bangalore I
Kamataka, Bangalore

183
 58. CCE, Bangalore II
59. CCE, Bangalore III
60. CCE, Belgaun
61. CCE, Mangalore
62. CCE, Mysore
13. Accountant General Txudit), Kerala, 63. CCE, Cochin
Thiruvanthapuram
64. CCE, Calicut
65. CCE, Thiruvananthapuram
14. Accountant General (Audit)- Il, 66. CCE, Indore
Madhya Pradesh, Gwalior
67. CCE, Bhopal
15. Accountant General (Audit), 68. CCE, Raipur
Chhatisgarh, Raipur
Accountant General (Audit)-Il, 69. CCE, Nagpur
16.
Maharashtra, N agpur
17. Accountant General (Audit), Goa 70. CCE, Goa
18. Accountant General (Audit)-Il, Orissa, 71. CCE, Bhubaneshwar I
Bhubaneshwar
-72. CCE, Bhubaneshwar II
19. Accountant General (Audit), Punjab, 55A CCE, Chandigarh
Chandigarh
73. CCE, Jallandhar
74. CCE, Ludhiana
20. Accountant General " (Audit)-Il, 75. CCE, Jaipur I
Rajasthan, Jaipur
76. CCE, Jaipur II
21. Accountant General (Audit)-Il, Tamil 77. CCE, Chennai I
Nadu, Chennai
78. CCE, Chennai II
79. CCE, Chennai III
80. CCE, Chennai IV
81. CCE, Coimbatore
82. CCE, Madurai
.•.
83. CCE, Tiruchirapalli
84. CCE, Pondicherry
85. CCE, Salem

184
 86. CCE, Thirunelveli
22. Accountant General (Auditj-Il, Uttar 87. CCE, Allahabad
Pradesh and Uttranchal, Allahabad
88. CCE, Ghaziabad
89. CCE, Lucknow
90. CCE, Kanpur
91. CCE, Meerut I
92. CCE, Meerut II
93. CCE, Noida
23. Deputy Accountant General (Audit), 55B CCE, Chandigarh I (UT area)
__ U.T., Chandigarh
23 Total 93
---

----
185
 CHAPTER-22

AUDIT PROCEDURE - PLANNING

22.1 Need for audit planning

The economic liberalisation initiated in 1991 by the Central Government carried

a focus on tax reforms since it was felt that complexities in levy and collection of tax
could fetter economic activity. The Tax Reform Committee headed by Dr. Raja
Chellaiah which examined the tax system and administration in the country, concluded
that a simple, credible and progressive system was necessary to improve tax compliance.
The Central Government accordingly introduced a number of tax reforms in the Central
Excise administration. This included widening the scope of Modvat system, introduction
of self assessment procedure, dispensing with of the statutory records to be maintained
by the manufacturer assessees and extending total reliance on the assessee for tax
compliance etc.

The dispensation of statutory records maintained hither to (upto 30 June 2000) in

prescribed proformae would not be construed as complete freedom and dispensation of
record keeping all together. Certain minimum records have to be maintained by the
assessee for his own internal controls. The self assessment procedure has also shifted the
focus of department checks from pre-clearance to post clearance. The job of assessing
monthly/quarterly returns (RTI2/ERI) is no more the statutory responsibility of the
Range Offices. Thus total reliance is placed on the voluntary tax compliance b the
assessee.

There is, therefore, a need for introduction of a strong, more professional and a
result oriented system of audit based on basic Accounting/Auditing principles with focus
on the safeguarding of the Government Revenue. For this, various factors like total worx
load involved, optimum utilisation of available manpower resources, revenue trends.
sensitivity of the product to suppression and duty evasion, increased use of
Modvat/Cenvat credit shall have to be taken into consideration for a comprehensive audit
plan which should be prepared keeping in mind the auditing standards.

22.2 Basic requisites

22.2.1 The audit work should be planned to ensure high quality audit in a time}
and economic, efficient and effective way

(i) The Auditor should plan both at the Macro level for optimum utilisation of audit
resources and for specific audit assignments for their orderly conduct in an economical,
efficient and effective manner.

(ii) The Auditor should prepare, plan and prioritise inventory of audit assignments
with reference to outlays, contemporaneous relevance and administrative and socio
economic importance as well as quality and quantity of available audit resources and
skills.

(iii) The Auditor may re-align the plan in the course of audit 111 the light of
developments and disclosures when such revision becomes necessary.

186
22.2.2 Audit parties should be properly guided, directed and supervised

(i) It should be ensured that the objective of an assigned audit are clearly set out,
audit parties receive' appropriate directions, guidance and supervision so that the audit
task is conducted properly and audit objectives are achieved in an economical, efficient
and effective manner.

(ii) Audit party should clearly understand their assigned task before starting the
work.

22.2.3 Supervisory work of audit and audit reports should be timely

(i) It should be ensured that conformity with auditing standards is obtained;

(ii) The audit programmes are followed as approved unless deviation is justified and
authorised;

iii) Audit is conducted with due professional care;

.iv) The working papers and evidences adequately support the audit conclusions and
provide sufficient data to prepare for a meaningful report; and

(v) The audit objectives as planned and defined are substantially met. rr":

22.2.4 Sufficient understanding of the internal control system should be obtained

"i) The executive Government is responsible for ensuring that system and
procedures are in place for establishing and maintaining an effective internal control
• stem including internal audit to ensure that appropriate goals and objectives are met.
re ources are optimised, laws and regulations are followed and reliable data generated
and maintained.

ii) In designing the audit steps and procedures to test or assess the compliance, the
Auditor should evaluate the audited entity's internal control and assess the risk that the
ontrol system might not prevent or detect no compliance.

Ul Where the accounting and other information system are computerised, the auditor
- uld determine whether the internal controls are designed and function properly to
e the integrity, reliability and completeness of the data and its processing.

The INTOSAI guidelines for internal control standards for the public sector -
hould be taken into consideration while assessing internal control.

Preparation of audit plan

.1 Collection of data - preparation of database

The CERA Headquarters of the Accountants General/Pr. Directors of Audit

hould collect the Commissionerate/DivisionJRange wise details of all the
assessees from the department/assessee and prepare a data base in the computer. The
hould incorporate the following details and should be updated on regular basis.

187
(i) (a) A Range-wise list of units showing year wise revenue collected through PLA
and adjustment through Modvat/Cenvat. (b) The list should be further grouped category
wise in accordance with the headquarters instructions fixing norms for periodicity of
audit based on revenue collection (c) Assessee's profile showing names, address, Regn.
No. of the assessee, Range, Division, Commissionerate, commodities manufactured,
value of clearances, duty paid through PLA and adjustment in ModvatlCenvat credit
Account during the last 3 years as per format given in Annexure 22.1.

(ii) Based on earlier audit output, a list of commodities sensitive to manipulation and
evasion,

(iii) List of units sensitive to manipulation and evasion.

(iv) List of commodities which attracted large number of audit objections.

(v) List of units on which large number of objections have been raised and show
cause notices issued by the department.

(vi) List of units in which no audit objections were raised during the last 3 years IL
Reports).

(vii) List of units taken up for special audit by the department.

(viii) List of units where classification of a product or' availment of exemption

notification is prima facie not in order and revenue involved is substantial.

(ix) List of units where value of the goods declared showing a downward trend or
value appear to be low when compared to similar goods manufactured by other
manufacturers.

(x) List of units in which substantial duty is paid on goods captively consumed.

(xi) List of units in which assessments are made on provisional basis on various
grounds.

(xii) List of units also getting their goods manufactured onjob work basis.

(xiii) List of units where percentage of modvat/cenvat credit availed is on the rise.

(xiv) List of units against which complaints about evasion of duty are received through
any source.

(xv) List of units for which any other useful information from Central Excise point of
view appearing in various newspapers, magazines and various reports issued by different
investigating agencies.

(xvi) Digest of case law decided by Tribunals, High Courts, Supreme Courts.

(xvii) Audit objections accepted by the department.

188
 ~ J-b'\
22.3.2 r evised !!QrI~" for selection of units for a~nual audit pla~ ~

~ (i) (:reparation of annual audit plan

Subject to changes by headquarters office from time to time for the selection of
Central Excise and Service Tax units for annual audit plan, the following procedures
should be followed: -

(a) Category "A" units

Where payment of excise duty through Personal Ledger Account (PLA) exceeds
Rs.5 crore in any of the three preceding years units are to be categorised as "A" units.
The audit of all these units will be programmed for annual audit.

(b) Category "B" units

Where payment of excise duty through (PLA) ranged between Rs. one and fi e
crore units are to be categorised as "B" units. The audit of all these units will be
programmed for annual audit on the basis of formal risk analysis. A list of all those units
selected on basis of risk analysis justifying the selection will also be sent to the
headquarters office alongwith Annual audit plan.

(c) Category "C" units

Where payment of excise duty through (PLA) did not exceed Rs. one crore .
each of the three preceding years units are categorised as "C" units. These units may be
programmed for audit only for the purpose of systems reviewslissue based or commodity
based identified by the headquarters. Prior approval of headquarters may be obtained for
selecti~n of these units furnishing justification for eac)'

(d) G-ange/Division/commissionerate (including Chief Accounting Offices0

The audit of these offices shall be programmed on annual basis.

(e) ~nalYSiS of risk factor j>

The following risk factors should be taken into account while selecting the unit
for audi gramme.
(i) New units
(ii) Trend of revenue, excessive availment of Cenvat credit
(iii) Past yield of audit output
(iv) Reliability of assessee's accounting records
(v) The extent ofInternal Control in operation
(vi) Track record of the assessee's performance
(vii) Internal audit reports
(viii) Revenue prone commodity/sensitive commodity
(ix) Media reports
(x) HeadqUarter~rs

• Headquarters circular No.18/91 CE dated 23.04.1991, 0.0. No.479-498/RNINDT/560-99/Misc,/Part III

dated 25.05.2001, 0.0. No.517-36/RA/INDT/CE/560-99/Misc dated 31.05.200 I and circular NO.5/2004
CX [Link].199 RA-I/INNDT/CE/555-2003/Misc. (CAPs)/Part I dated 25.02.2004 may be referred to.

~
18~
(xi) Horizontal reviews
(xii) Cases linked with important case laws
(xiii) Fraud linked cases
(xiv) Records not produced to Audit during earlier audits
(t) ~pproval by Accountant General/Pr. Director of AUdit)

The annual audit plan and its further changes will have the approval of Pr.
Directorl Accountant General (Audit).

(g) ~eport to Headquarters)

Details of all such units programmed for annual audit shall have to be furnished
to headquarters with annual audit plan.

22.3.3 Formation of CERA parties

One Senior Audit Officer/Audit Officer, One/Two Asstt. Audit Officer(s) and a
Senior Auditor/Auditor shall comprise a CERA party which should be so drawn up as 0
balance, as far as possible, the available talent. Party should consist of not less than
members. Special Parties should also be formed when yield of good material for audi
report can be expected from a set of units grouped together.

22.3.4 Audit scheduling (Programme)

For making audit programme following points should be kept in view: -
(i) Should be made on regular basis (Quarterly). Accountants GenerallPrincipal
-Directors of Audit (Central) may subject to availability of party da s at hi
disposal, allow extension in audit time in justified cases only. 0 oth r
programme should be made unless directed by headquarters of the offi
concerned.
. -
(ii) Audit Programme should be intimated to the department and to the assessee wel
in advance (about 2 weeks before taking up of audit). In the intimation letter
every auditee/assessee should be informed that in case of any problern/difficultie
with the CERA party they may contact group officer in -charge of CERA at hi
office address personally or through telephone number, which may be specified
in the letter.

(iii) Selection of records for test audit should be based on sampling as per
headquarters instructions issued from time to time in this regard.

(iv) For close supervision of CERA parties, deviation from programme allotted
should not be permitted except in cases where justification for deviation is given
in writing.

190
 Annexure 22.1

1. Date of Preparation _
2. Year (Period) of audit coverage _
3. Dates of audit _

Assessee's Profile

Name (with computer code No.) and

address of

(i) Commissioner of Central Excise

ii) Division

iii) Range
(With Telephone/Fax/E-Mail
address)

i) Name and address of the assessee

including address of the Registered
Office/Head Office

ii) TelephonelFaxlE-Mail address

(iii) Status

(a) Proprietary/Partnership/P. Ltd.

[Link] Ltd. Co.

(b) Public Sector/Private Sector

(c) Holding Co. or Subsidiary Co.

(d) Non SSIISSI (with registration

number of the SSI department)

(e) Manufacturer/Registered
Dealer

(f) Service Provider

1 ' (a) Excise Registration No.

~--------------------
(b) E.C.C. No. b) _

Income Tax PAN

1. Sales Tax Registration Number

a) Central

191
 b) Local

3. Name and address of the Proprietor/

Partners, Managing Directors,
Attorney, if any, with PAN,
Telephone numbers.

4. Name and addressees) of the Bank

(through which normal transactions
are made)

s. Name and address of authorised

person/contact person (dealing with
Central Excise matters) with
telephone number

6. Attach Organisation Chart (Details

of Head Office, Factory, Depots,
C&F agents, Branches etc.)

7. Attach a flow chart of

manufacturing process, production,
and clearance

8. Names of the commodities [Link]. Commodity

manufactured with classifications

CSH & rate of duty leviable against I.
each. with exemption, if any availed, 2.
from duty availed of on 3.
commodities with notification No 4.
5.

9. Details of Production, Home

clearance, export clearance and duty
paid on clearance during 3 years
through PLAlCenvat

Year Commodity Q!v., Home Clearance Exports

(CS H) Manufa
ctured
Under Bond Under Claim of rebate

~ Value Duty ~ Value Duty ~ Value Dut\

I
PLA Cen
vat
PL I Crn
lit

192
10. (i) Details of Depots etc Name and address of
Depots/consignment agents

(ii) Details of Sister units (if any) Name and Nature of

address Transaction
dealt with . '.

(iii) Delayed payment of duty and Amt. Total Paid Interest Penalty
Of paid on levied/ levied
interest! penalty paid date wise
duty on paid

11. (i)(a) Purchase of maj or inputs (3 years) Year Commo CSH ~ Value
dity
I.
2.
3.

(b) Purchase of major capital goods (3 Year Capital CSH ~ Value

years) involving substantial duty goods
I.
effect during last 3 years 2.
3.

(ii) Name and address of the major S. Nameand Name of input

suppliers of inputs (Attach sheet in No. address

case of need)

12. Major inputs/capital goods cleared Year ~ CSH Value

as such and amount of Cenvat
reversed/duty paid (Attach sheet in
case of need)

13. (i) Details of job work undertaken for Year Nature of job
others (not subjected to duty)

(ii) Name and address of the parties on

whose behalf job work undertaken
(Attach sheet if necessary)

193
; 14. (i) Details of goods sent for job work Year Oty. value of [Link] of
and [Link] of scrap received goods sent for scrap received &
iilll accounted for
back from job workers

(ii) Details of job workers (Attach S. No. Name and ECC

separate sheet if required) address code

15. Other Details

1. Period upto which unit was last

audited

2. Details of outstanding objections Amt. Involved tatus

report

3. Year up to which financial accounts

are complete and balance sheet
prepared and shown to Audit

4. (i) Details of show cause notices Date of SCN Amt. Issue

Involved involyed
pending adjudication, as on date
(Attach a separate sheet if
necessary)

(ii) Details of demands confirmed (as on

date)

(iii) Details of amount of demands paid

out of (ii) above

(iv) Details of cases (and amt. Involved)

where appeals have been filed (as on
date) by the assessee

5. Level of computerisation

(i) Software used

(a) Foxpro

(b) Access

(c) Oracle

(d) Others, (Please specify)

194
 (ii) Network (Internal)

(iii) Extent of Computerisation

1. Production
2. Clearance
3. PLA
4. Invoice
5. Monthly return
6. Others (PI. specify)

(iv) Connectivity with department

6. Whether there are rnulti-locational

factories (give details)

7. Whether goods are cleared for

captive consumption in a factory
situated elsewhere. If so, whether
goods are cleared on payment of
duty

8. Whether assessments made are

provisional, if yes, attach details

(a) Period upto which provisionally

assessed

(b) Period upto which assessment

finalised

(c) Amt. of duty paid on finalisation

(d) Amt. of interest paid

9. Whether goods are cleared from the ame and addr

factory gate direct to the buyer or
sold through Depot/Related persons.
(Attach list of related persons)

10. Whether goods are cleared in CKD

condition to be installed at site, if so,
attach details of the goods installed
at site during the last three years
period and duty paid thereon

11. The year upto which Income tax

returns are filed

12. The period upto which Sales Tax

returns have been filed

195
13. Whether moulds and dice were
supplied to the job worker. If so,
attach up to date details

14. Attach details of debit notes/credit

notes issued during the period
covered by Audit. Whether their
impact on valuation has been
subjected to duty correctly

15. Whether commercial invoices are

issued in addition to excise invoices
f1d are tallied with the excise
invoice figures

16. Whether goods are covered under

the Weight and Measurement Act
and covered under the Maximum
Retail Price (MRP)/Retail Sale Price
(RSP). Attach a list of such goods

17. Attach copy of cost data of goods

manufactured

18. Any other relevant information, not

covered above

Signature

Name

Designation Sr. Audit Office

CERA Party No.

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 CHAPTER-23

AUDIT EXECUTION (PROCEDURE & AUDIT CHECKS)

23.1 Items of work

The following are the important items of work in relation to audit of receipts
which arise from the Constitutional, and statutory responsibilities and duties entrusted to
Audit: -

(i) examination of the rules and procedures for survey and identification of potential
assessees and persons from whom receipts may become due and failures in individual
cases;

(ii) examination of the rules and procedures for generating of returns from assessee
and other data necessary for doing assessment work in order to raise demands and
failures in individual cases;

(iii) examination of the laws, rules, and procedures and individual cases, with a iew
to ensuring that amounts legally due are assessed and demanded and they are paid or
credited to Government;

(iv) examination of rules and procedures for receipt of payments without delaj and
for prompt recovery of amounts due and failures in individual cases;

(v) examination of accounts and individual cases relating to receipt of payments and
their incorporation in accounts, which get certified in audit and reported upon;

(vi) examination of the rules and procedures for correct accounting and allocation 0-
amounts credited to the Consolidated funds and failures in individual cases;

(vii) examination of rules and procedures for keeping subsidiary accounts of receip
demands, collection, recoveries, seized goods and stores and failures in individual case :

(viii) examination of individual errors, mistakes, irregularities, frauds, forgeries, acts of

negligence and omission, double refunds, delays in recovery, incorrect, irregular or
fraudulent accountal or prolonged delays in acccountal, write offs of irrecoverable
revenue, etc.;

(ix) analysis of individual failures pointing at deficiency in rules and procedures and
management failures; and

(x) discussion with executive authorities at appropriate levels and sending reports to
auditees at various levels on the findings of Audit including analysis of findings and
conclusion of audit.

23.2 Deployment of audit personnel

Once the units are programmed for audit, they should be allocated among
available audit personnel. For the allocation of audit work, a profile of each Sr. Audit
Officer/Audit Officer, Asstt. Audit Officer/Section Officer should be maintained by the
programme cell in CERA headquarters. Whenever an expert Sr. Audit Officer/Audit

197
Officer/ Asstt. Audit Officer is available for audit work, he/she should be drafted as far as
possible for audit of units in which he has expertise. The criteria for posting in the
CERA party may also be considered mainly on the basis of educational and professional
qualification, experience and previous performance. If during any time any official is
considered to be not performing in the respective field, he should either be tried in other
wings or given some intensive training.

23.3 Development of manpower

For purpose of development of manpower in CERA Branch, the following factors

should be kept in view.

(i) Use of expertise

The newlinexperienced persons may be sent to the field only with

experienced officers with a view to familiarize them with the work

(ii) Training

As far as feasible officials trained in Revenue Audit should be posted in

CERA. Arrangements may be made for organising technical seminars and in-
house training programmes on the subject. Group discussions from time to time
may be arranged by inviting faculties from the department and other offices.

(iii) Rotation of personnel

Rotational transfers should be made as per provisions made In M 0

(Admn.) Vol.!.

(iv) Distribution of potentiality

The allotment of units should be made in such a way that no individual is

sent to a particular unit number of times so that every official gets an opportunity
in rotation to conduct audit of potential units and contribute material.

(v) Accountability for non-performance

There should be clear understanding that person not contributing

sustainable substantial material to local audit reports will not be retained and will
be held answerable for non performance.

23.4 Devolution of duties

A tentative list of duties assigned to the member of CERA parties is given in

Annexure 23.1. They are for guidance. The Senior Audit Officer/Audit Officer or
Asstt. Audit Officer in charge of the party shall have the power to allow any additional
duties or checks to himself or Asstt. Audit Officer or Senior Auditor. Further, to suit
local conditions and other constraints (administrative and human) local variations in the
devolution may be made by Accountant General (Audit) or Pr. Director of Audit keeping
the Pr. Director (INDT) in the Office of the Comptroller and Auditor General informed.
The devolution is designed to ensure that individual effort is put in; also that it will
facilitate the recognition of commendable work done by individuals.

198
~ Audit procedure and preliminary checks - audit of manufacturing unit

The audit procedure and checks dealt with in this chapter have to be interpreted
in the context of basis and purpose of audit. While the basic value of audit is to discover
or bring to light what others know but do not reveal, the analytical content in the reports
are no less important. Audit procedure and practices are, therefore, not invariable for all
times, they are only means to end, hence, if an end is not served means must change.
Therefore, audit procedure and checks mentioned below which are not exhaustive and
are only indicative, need to be grounded in sound common sense and be supplemented
by originality and imagination in their adoption.

In keeping with the perspective plan, the tools of statistical sampling will be
employed in Central Excise Revenue Audit in accordance with headquarters instruction
on the subject.

/' 23.5.1 Prelimina checks

(a) At office

The desk work should be done by the CERA party in the office. The idea is to
gather as much relevant information about the assessee and its operations as far as
possible before visiting the assessee's unit. The items covered under the preliminary
work include the following: -

(i) Analysis of the assessee's profile;

(ii) Risk factors considered for selecting the units for audit.
(iii) Detailed analysis of working papers relating to results of last audit.
(iv) Goods manufactured and, process of manufacture, study of literature tariff.
exemption, notification etc. relevant to the product.
(v) System of maintenance of records adopted by the assessee.
(vi) Procedure followed by the assessee for goods sent to job workers, re-entry of
duty paid goods for repair and Captive consumption etc.
(vii) Revenue realised through PLAlCENV AT, growth rate - analysis of.
(viii) Anti evasion cases against the assessee and details of show cause notices issued
by the department & other pending cases.
(ix) Income tax, sales tax returns - study of.
(x) Study of paras featured in C & AG's reports and digest of important and
interesting cases.
(xi) Balance Sheets, Annual reports with key notes - scrutiny of.
(xii) Change in law/tariff/notification relating to commodity audited.
(xiii) Marketing pattern adopted by the assessee.
(xiv) Latest judgements delivered by Supreme Court, High Courts and Tribunals on
relevant products.
(xv) Tentative action plan to be chalked out.
(xvi) Discussion with superior (Group Officer) on tentative action plan, areas to be
focussed and sample to be decided.
(xvii) Contact with assessee for confirmation of the programme.
(b) At Range office

Before going to the assessee's unit for conducting audit, the following relevant
information may be collected from the Range Offices: -

199
(i) Details about registration of the unit, goods manufactured (now available in
Divisional Offices).
(ii) Details of monthly (RT-12/ERI) Returns received and verified by the Range
Office in respect of the concerned assessee (s) programmed for audit.
(iii) Details of irregularities noticed, show cause notices issued to the assessee (s) and
position of pending demand cases.
(iv) Study of correspondence file relating to the assessee.
(v) Any other information relevant to audit, available in the Range Office.

(c) At assessee's unit (factory)

(i) Gather information about and document, the business system in use at the
assessee unit: -
(a) Interview key personnel in the organisation and discuss business
operations, products manufactured, handled and any other change since
last audit.
(b) Tour of manufacturing unit, access to necessary records at different
apartments.
(c) Obtain list of records being maintained, compare it with details at
Annexure 23.2.
(ii) Review the organisation - obtain information about the organisation, related units
and business and any other changes in the organisation since last audit.
(iii) Procure and study the minutes of Boards meetings, copies of Profit & Loss
Accounts and Balance Sheets of latest years.
(iv) Examine inventory reports - like physical verification of stock obsolescence
report, slow moving items etc.
(v) Study the other returns & statement - like Sales tax, Income tax and bank
statements submitted for loans etc; lease documents of machinery procured from
Finance Companies.
(vi) Examine annual reports, general ledgers, sundry debtors, creditors, invoices
vouchers, agreements, contracts for study from Central Excise point of view.
(vii) Review the system of accounting of Central Excise and Cenvat credit.
(viii) Complete the assessee's profile.
(ix) Ascertain
~ Sales pattern
~ Marketing pattern
~ Pricing practices
~ Discount practices
~ Other revenue earned
~ Trading activities - system employed
~ Modvat/Cenvat implications
(x) Ascertain system for recording of captive consumption of goods.
(xi) Collect the details of exports, under bond/on payment.
(xii) Purchases/imports.
(xiii) ISO 9000-9001, 9002 certification
(xiv) Industry ratio (input/output ratio).
(xv) Industry reports in CMIE, other economic journals and newspapers.
(xvi) Compilation of statistics and analysis thereof.
(xvii) Note down the irregularities noticed.

200
 (d) At tour of plant

A physical tour of the plant provides confirmation of much of the information

gathered earlier and points to operations not discussed and provide clue to important
aspect of the unit.

Following points should be seen while going for tour to the plant: -

(i) Observe actual operations to assess areas vulnerable to non compliance.

(ii) Goods manufactured/purchased for resale.
(iii) Flow chart of manufactured goods.
(iv) Partly manufactured goods - processing involved - goods sent to job workers -
documents used.
(v) Goods brought for repairs - components used.
(vi) Capital goods - used, acquired recently and used for exempted goods.
(vii) Control mechanism used over movement of raw material, semi finished
goods/finished goods and capital goods.
(viii) Generation, weighment and accountal of scrap.
(ix) Final product stage - packing used.
(x) Checking, tests, final tests before clearance - system to identify and deal with
rejected goods.
(xi) Documents used for despatch through - train, trucks, other means viz. challans,
despatch note.
. (xii) Disposal of waste .

23.5.2 Evaluation of internal control system

An evaluation of internal controls help in formulating a detailed programme of

verification. Deficiencies in internal controls would determine the speed and depth of
Auditor's verification programme. For this purpose following factors should be
studied: -

(i) Characteristics ofthe assessee's business and its activities.

(ii) System of maintenance of private records - sales accounting, purchase
accounting, Cenvat availment etc. Since no mandatory records are required to be
maintained, private records showing accountal of Central Excise duties.
availment of Cenvat etc. has to be checked up and relied upon.
(iii) Distribution of authorities and responsibilities.
(iv) System of Internal checks - for receipts and issue of raw material, movement of
semi finished goods, final products till despatch and payment of duty thereon
(v) System of internal audit.
(vi) Sample checks of - Purchase system, sales system and movement of raw material
and semi finished goods and related material within and outside the factory.
(vii) System of accountal of job work undertaken.
(viii) System of semi finished goods sent to job workers.

23.5.3 Trend analysis

(i) Compare year to year changes in receipt of major inputs, sales, (finished, semi-
finished, inputs or capital goods as such) assessable value, duty paid through PLA and
adjustment through Cenvat for a period of 3 years.

201
(ii) Ensure that prima facie there is no leakage of revenue on account of
undervaluation, suppression or clandestine clearance.

(iii) Compare changes in rates of gross profit during the period of 3 years. It could
show an over all picture about the organisation's health and profitability. Whenever
their gross profit has either declined or remained constant despite decrease in production
or sales, then a detailed study can be undertaken to see if there is any undervaluation. On
the other hand abnormal increase in gross profit without corresponding increase in price
per unit could be as a result of under valuation because of non inclusion of additional
considerations flowing back directly or indirectly from buyers to the assessee.

(iv) If the Cenvat credit availed on input has gone up compared to previous
month's/year, the reasons for such an increase has to be studied. This could be as a
result of increase in rate of excise duty on inputs, increase in quantum or value of inputs.

(v) The increase in quantum or value of inputs can be verified to see whether there is
corresponding increase in quantity or value of output, the abnormal variance could be
indicative of clandestine clearance.

(vi) In case, the Cenvat credit availed is less due to reduction in duty rate on inputs
but duty paid through PLA remain constant even quantum of inputs received remains
same or is more, such a variance could also be indicative of clandestine clearance.

23.5.4 Risk loss analysis

Taking into consideration, the preliminary work at headquarters, range office.

factory as well as further analysis made as mentioned in the earlier paragraphs, prepare
details of risk loss involved in the audit execution: -
System analysed Remarks
~ General Accounting system ~ Good
~ Acceptable
~ Poor
~ Sales Accounting system ~ Good
~ Acceptable
~ Poor
~ Purchase Accounting system ~ Good
~ Acceptable
~ Poor
~ Cenvat credit accounting ~ Good
~ Acceptable
~ Poor
~ System employed for Movement of ~ Good
raw material, semi finished & ~ Acceptable
finished goods within and out side ~ Poor
the factory

Cases of poor performance would require detailed and careful scrutiny.

202
 23.5.5 Developing the action plan

At this stage, the audit party should apply their mind, and decide whether the
procedures evolved in the assessee's unit are capable of ensuring compliance to the
provisions of the act and the rules or not. If the internal control is reliable, only a test
check of records may suffice otherwise audit party may like to select that area for
detailed audit. Based on the findings, an audit plan specifying the areas and the extent to
be examined, has to be prepared. Therefore, no physical audit work should commence
unless a detailed audit action plan of the work to be undertaken is chalked out.
Therefore, a detailed action plan in a narrative or list format should be developed. It
should be based on information already collected besides analysis made of internal
control mechanism deployed, reasonable test, the risk loss involved and trends analysis
in respect of duty paid through PLAlCenvat credit etc.

Selection of specific areas of accounting records should be based on

predetermined factors. Samples should be decided on basis of the information analysed
and should not be pre-determined. It should be consistent with the complexity of audit:
selection of specific audit and consider large, unusual or questionable items and consider
business sector issues. The audit plan must be specific and outline specific areas and
percentage of records to be reviewed where risk is minimal, these areas will be subjected
to limited scrutiny.

@ Audit Checks (Verification of records)

Before starting the actual audit checks, a comprehensive list of records to be

made available to the CERA party may be given to the assessee. The audit checks
should be exercised by the Sr. Audit Officer/Audit Officer, Asstt. Audit Officer and
Auditors according to the distribution of work to each and duly signed by them.

(i) Registration

~ It should be seen that registration certificate is issued by the competent

authority for the premises where manufacturing is undergone;
~ Is available with the assessee;
~ Indicates goods being produced with correct classification;
~ There is no change in the constitution of the firm or change, if any, has been
duly informed to the Range Officer within one month;
~ Is there any item having produced but omitted to be entered in the register;

v® PLA
)I> Register in proper form is authenticated by the authorised person.
~ T.R. 6 Challans for the duty payment in Bank during the period of audit are
available.
~ Get a revenue statement prepared and analysed.
~ Select a month at random and verify credit taken in PLA.
~ Reconcile one months invoices with debit entry in PLA.
~ If short debit/wrong debit found, increase the number of invoices to be
verified.

203
 ~ All payment in installments are made on due dates and interest has been paid
correctly on delayed payment, if any. Check if the department has taken
cognisance of any trend in delayed payments.

~ '5-(, .(iii) Cenvat credit on inputs ./

-~ Go through in details the changes made in the Cenvat rules from time to time.
~ Verify credits in Cenvat credit account maintained by the assessee both in
respect of quantity and amount of credit on inputs with reference to duty
paying documents. If excess credit are found, increase the period of
verification.
~ Reconcile one month invoices with debit entries in Cenvat account.
~ If short [Link] debit are noticed, increase the period of verification.
~ Check credit taken was admissible under the rules; Goods are meant for u e
as input in the manufacture of excisable products.
~ Duty paying documents are genuine.
~ Accuracy of credit is verified.
~ Goods on which credit is taken are actually received and used for
manufacture or are still available in stock and facts are verifiable from private
records.
~ Credit on rejected goods before use in production are reversed.
~ Credit on goods returned as such are reversed.
~ Proper records of inputs used in goods manufactured in the factory are
maintained.
~ Proper records of common inputs used for exempted and dutiable goods are
maintained.
~ No credit is taken on inputs used in exempted final products.
~ Certificates in lieu of duty paying documents are genuine.
~ Intra company transfer of inputs are not effected to pass on the un-availed
credit to sister units.
~ Clearance and receipt of inputs/semi finished goods to job workers for further
processing is properly accounted for.
~ Proper procedure has been followed for inputs sent directly from the supplier
to the job worker.
~ Verify monthly returns on inputs received, cleared for production or as such
and amount of credit taken/utilised from the relevant duty paying records and
entries in commercial records.
~ Carry forward of un utilised credit is correctly taken. •.

(iv) Credit of duty paid on capital goods

~ Select record, using method of statistical sampling for test check.

~ Go through the changes made in the Cenvat rules.
~ Check that credit is taken against prescribed duty paying documents.
~ Credit on capital goods is taken on goods actually received.
~ Capital goods are not exclusively employed for production of non excisable
goods, since cenvat credit will not be available in such case.
~ 50 per cent of the credit is taken in first year of purchase and balance 50 per
cent during subsequent year provided Capital goods are in existence for use.
~ Credit is reversed on capital goods rejected/returned.

204
 ~ Clearance of capital goods as such is on payment of duty equal to credit taken
in Cenvat Account.
~ Purchases of high value capital goods may be checked in details.
~ Certificate in lieu of duty paid on all goods issued by department officers is
correct.
~ All wastes and scraps are duty accounted for.
~ Capital goods sent for exhibition are received back.
~ Details of capital goods may be verified from private records.
(v) Classification

~ Check the details of "goods" (both excisable and non excisable)

manufactured by the assessee.
~ Whether all excisable goods are correctly classified.
~ Check the details of intermediary products, joint products, by-products,
wastes and scraps are correctly classified.
~ Check identifiable products are not cleared as wastes.
~ Review the manufacturing process. Check, if any product is left out from
being subjected to duty.
~ Classification of parts when cleared as such or as components alongwith the
main product is correctly made.

(vi) Production

~ Study the manufacturing process.

~ Study the cost audit reports wherever applicable.
~ Prepare a detailed note with flow chart on the manufacturing process
indicating the major raw materials/inputs used.
~ Ascertain the normal input/output ratio and verify that it agrees with the
production figures and consumption of raw material during 3 years. Analyse
the variations and give your comments.
~ Power consumption by category wise production. Verify Annual reports.
Whether production is related to workers employed, use of electric power or
consumption of basic raw material, correlate the details with actual
production. If there is captive generation of power and diversion for non
productive use, check if cenvat credit is proportionately debited.
~ Ascertain the details of licenced, installed capacity and actual production and
comment on increase/decrease and its impact on duty collection and reasons
for low capacity utilisation.
~ Reconcile production with figures of production shown in (RG I) stock
register for excisable products.
~ Study the system in use for recording the daily production and documents
used.
~ Study the extent to which waste and scrap IS generated and recorded,
especially in industries where lot of scrap is generated e.g. engineering
plastics, rubber.
~ Cross check the production growth rate. Whether it is commensurate with the
growth noticed in the industry as a whole.
~ Compare actual production with production linked bonus if paid to the
workers.

205
 )p> Cross check the actual production with other factors such as packing
material/containers consumed, waste and scrap generated, charges paid to
labour contractors etc.
)p> Production, clearance and raw material consumption during the last quarter of
the year may be checked in detail to see it is fully accounted for.
)p> Check the store records in respect of some of the major inputslraw materials
components and correlate their consumption with final products.
)p> Compare the production figures shown in excise records with those shown in
Annexures to the Balance Sheet and comment.

(vii) Clearance

)p> Compare the clearance figures reported to the department through month!
returns (RT-12IERI) report with internal MIS returns/sales figures as
furnished in the annual report/cost audit report/income tax/sales taxlbanks
statements and reconcile the figures.
)p> Study how spares and accessories are supplied and their value included in the
total value charged to duty.
)p> Monthly returns are submitted by due dates.
)p> Study the pricing pattern followed by the company in respect of clearance to
related persons/depots/consignment agents.
)p> Clearances under bond have been effected as per procedure laid down in the
rules and under proper form (AR 4, AR 4A, ARE I or ARE 2). Whether bond
amount and the bank guarantee furnished are sufficient.
)p> Clearance at NIL rate or concessional rates of duty are correctly made and
proper procedure followed.
)p> Clearance of wastes are subjected to duty and wastes retained by job workers
is also charged to duty, check few sample cases.
)p> Stock transfer to Depotslbranch may be cross checked with depotlbranch
records.
)p> Check whether provisional assessments are made as per provisions of the
rules and bondlbank guarantee of adequate amount furnished by the assessee
and orders issued by the proper officer (Assistant Commissioner of Central
Excise/ Deputy Commissioner of Central Excise).

(viii) Valuation

)p> Go through in detail the provisions of Section 4 of the Central Excise Act,
1944 and the Central Excise (Valuation) Rules, 1975 as superseded by
Central Excise (Determination of Price of Excisable Goods) Rules, 2000
(effective from 1 July 2000). Go through Board's clarifications thereon.
)p> All cases should be checked on merit with reference to law prevailing at the
time of clearance.
)p> Check the pattern of sale adopted by the assessee, as factory gate sale, depot
sale or door delivery.
)p> Procure and check copies of agreements with major buyers, especially long
range contracts.
)p> Additional payments received on account of escalation clause in the
agreement are duly subjected to duty and duty is paid to the Government
account.

206
 ~ Verify some debit notes with the factory gate invoices relating to goods.
Compare the stock transfer rates effected.
~ Check freight paid on goods cleared is charged to duty as per law.
~ Check whether retail prices are required to be declared on the packages under
the Weight and Measurement Act and duty is charged on basis of MRP price
after deduction of correct abatement. Check calculation backward from MRP
and arrive at the Assessable value.
~ Check whether price charged on goods cleared through depot/related persons
is correct.
~ Verify how sales returns are accounted for.
~ Check how duty is charged on goods assembled at site and if charged to duty
as 'goods', whether installation and erection charges are included in the
assessable value.
~ Discount allowed are actuals and there is no flow back of additional
consideration to the assessee on this account.
~ Cross check the details of sales of excisable goods with the sales book figures
appearing in final accounts and LT. returns.
~ Cross check the sales figures with the figures shown in sales tax returns.
~ Assessable value of goods manufactured on job work basis is correctly
determined according to the Supreme Court judgement in Ujagar Prints case
viz. assessable value comprising of landed cost +Job Charges + Profit of the
job worker is charged to duty correctly. Amortized cost of moulds used for
manufacture are also added to the assessable value.
~ Review the manufacturing process and products, prepare a detailed note
thereon, indicating the main products, wastes and scraps arising during the
manufacturing process, giving the input output ratio of some of the raw
materials consumed.
~ Goods manufactured at site - every case should be checked to see if it
qualifies as "goods" in the light of Supreme Court judgements, and if they
meet this criteria and the duty has been discharged.
~ Also indicate the valuation percentage in the past 3 years and consumption of
power/fuel for each main product.
(ix) General

~ Procure the details of commercial and other concerned records maintained by

the assessee. A tentative list of basic and allied records maintained by the
assessee is Annexed (Annexure 23.2).
~ Call for Minutes of the Board's meetings of the company, to have a bird' s eye
view on all the activities of the company for the period of audit.
~ Verify inventory reports like physical verification of stock obsolescence
report, non moving items list etc.
~ Study the insurance claim file from Central Excise point of view, if any;
claim in respect of excisable products, modvatable inputs lost in fire, transit
before payment of duty liability on final products.
~ Check exemption meant for SSI units, is correctly availed of by the
manufacturer. Compare the figures with earlier year figures and analyse the
trend from Central Excise point of view.
~ Check details of cases initiated against the assessee for violation of various
other Acts/Rules and its impact on Central Excise duty collection.

207
 ~ Study the tender file, agreement file in respect of the goods cleared from the
factory to bulk buyer/industrial user, analyse its effect on duty collection.
~ Study the special audit report by internal audit, special investigation report
issued by the department in connection with the assessee. ;..;,
~ Any information due to loss suffered on account of tariff rise or natural
calamities and accounting adjustments.
~ Any other information which may be relevant for purpose of levy of service
tax, should be looked for and recorded for future use and action.
(x) Preparation of working papers

One of the keys to good audit is a system of good monitoring and evaluation of
audit reports. It is, therefore, necessary that all audit work must be clearly documented
in the working papers. The complete and updated working paper file must be prepared
and also made available to the next audit party visiting the unit so as to enable them to
acquire update knowledge of assessee's working system and the areas where they have to
concentrate during audit.

The working papers should be prepared in two parts: -

(a) About current audit

(i) Complete and updated auditee's profile (as per format given.)

(ii) Details of analysis made of risk factors based on which quantum of audit worx
had been determined.

(iii) System followed by the assessee in respect of accountal of purchase, sales return
of goods, movement of goods for job work and exports, issue of debit/credit note
and the defects noticed.

(iv) Details and extent to which different documents were checked in audit and relied
upon.

(b) For future compliance by next audit party

(i) Details of documents/information not made available by the

assessee/range/division. A clear note for next audit party should be left giving
details of documents to be checked and the extent to which the same has to be
used for examination/verification.

(ii) Details of other specific information, which need to be cross verified by the next
audit parties from specific record not made available by the assessee.

(iii) Any other important instruction to the next audit party as is deemed fit.

The working papers should be signed (with date) by the AAO and Sr. AO/AO
and reviewed by the Group Officer.

23.5.7 Detailed audit checks (Questionnaire)

Audit checks in questionnaire form (Annexure 23.3) should be undertaken by the
members ofthe CERA party as per the duty list assigned to each member. The check list

208
 contains audit check to be conducted by Senior Audit Officers/Audit Officer or Asstt.
Audit Officer and the respective entries should be filled in and initialed by Senior Audit
Officer/Audit Officer or Asstt. Audit Officer doing the work. The Senior audit
Officer/Audit Officer or Assstt. Audit Officer in charge of the party is free to make
changes in devolution of duties to suit day to day changes in availability and capacity of
persons in the party. Officials actually doing the work should initial the entries in the
check lists. The check list as a whole should be signed finally by the Senior Audit
Officer/Audit Officer or the Asstt. Audit Officer in charge of the party.

~3.6 Audit 0 Chief Accounts office ~v..dU.t CMc::.c:..~ ~

, /' 'Cft:l'n<:"\A...'{Y
'23.6.1 Introductory,/

The Central Board of Excise and Customs in the Ministry of Finance

(Department of Revenue) controls the collection of Central Excise duties through
Commissionerates. The Commissionerates, in turn function through their Divisions
Ranges. In each Central Excise Commissionerate, there is a Chief Accounts Officer
(CAO). Under erstwhile rule 173G of the Central Excise Rules, 1944, assessees are
required to maintain an account current (Personal Ledger Account - PLA) with Chief
Accounts Officer of the Commissionerate concerned showing the cash deposits made in
the nominated bank and debits made on account of duty paid on the excisable goods
manufactured and recovered by him. The Chief Accounts Office at the Commissionerate
is required to verify the amounts paid by the assessee as per their returns, with the
amounts reported as received by the Banks to the Pay and Accounts Officer. The CAO
also checks the refunds of duty made.

23.6.2 Payment of duty through Banks

As per the procedure prescribed, the assessee, at the time of payment of duty
furnishes four copies of TR - 6 challans to the Bank. After receipt of the amount and
making endorsement to that effect, the Bank returns the duplicate and triplicate copies of
the TR - 6 challans to the assessee and the original and quadruplicate copies are
forwarded to the Focal Point Bank whereby the amount deposited is transferred to the
Government account. After endorsing these copies of the challans to this effect the
Focal Point Bank sends the original sets of TR-6 with scrolls to the Pay and Accounts
Officer (PAO) and the quadruplicate copy to the nominated Range Officer who
segregates them and sends them to the respective Range Officer. The assessee while
furnishing RT -12 (ER!) Returns by the io" of the following (20th of the following
quarter in case of SSI units) submits the duplicate copy to the Range Officer and retains
the triplicate copy for his file.

23.6.3 Cross checking at Range Office

The Range Officer is required to tally the duplicate copy of the challan received
from the assessee with the quadruplicate copy and prepares a monthly revenue statement
indicating the particulars of amount deposited, challan-wise/date-wise and dispatch it to
the CAO alongwith a copy of the PLA submitted by the assessee and the quadruplicate
copy of the challan.

209
23.6.4 Verification by Pay and Accounts Officer

The Pay and Accounts Officer, after receiving the original copy of the TR-6
challans alongwith Bank scrolls, verifies and tallies the content and sends a sheet to the
Chief Accounts Officer (CAO) indicating the details of TR-6 challans and the amount
deposited DivisionlRange-wise.

23.6.5 Verification of duty payment by Chief Accounts Officer

(i) On receipt of monthly statements of revenue receipts from the Range Officers
and monthly compilation sheet from the Pay and Accounts Officer, the Chief Accounts
Officer (CAO) checks them from supporting challans. He reconciles the monthly
statement- of revenue receipts of Range Officers with the figures booked by the PAO in
the monthly account. From these checked statements, he traces challans as entered
therein in the monthly compilation sheets of revenue compiled by the PAO in respect of
each focal point Bank with a view to ensuring that (i) the challans have been properly
classified in the monthly account of the PAO; and (ii) the amounts of challans agree with
those appearing in the compilation sheets.

(ii) The discrepancies observed in the reconciliation process such as "less credits"
and "more credits" are noted down in the check register and a copy of the same
forwarded to the PAO.

(iii) The discrepancies noticed are carried forward and adjusted in subsequent months
after verifying with the concerned challans or by taking up the matter with the respective
banks/assessee as the case may be.

(iv) The delay in submission of the returns and in reconciling revenue receipts had
engaged the attention of the Public Accounts Committee earlier also. In their 160th
Report (Seventh Lok Sabha) and 110th Report (Eighth Lok Sabha) the Committee had
emphasised the need to complete the reconciliation work expeditiously so as to ensure
proper accountal of revenues.

(v) Delay in receipt of copies of Personal Ledger Account (PLA) from the Range
offices may also affect verification with the Bank returns. Central Excise duties claimed
by assessee to have been paid in to public sector Banks may not have been checked by
CAO because copies ofPLAs are not received from Range office.
,,'
Internal audit checks by CAO 'J

(i) The Chief Accounts Office is to conduct internal check of challans and
connected records received from the departmental office in the Range and Divisions.

(ii) Records for watching pursuance of irregularities noticed during checks by CAO,
are to be maintained.

23.6.7 Points to be seen in audit

The following are some of the more important items of checks that are required
to be exercised during concurrent audit: -

210
(i) Whether the returns required to be received from the Range Officers were
received in time alongwith supporting documents and proper record was maintained by
CAO to keep watch over their receipt.

(ii) Whether the prescribed checks were exercised by the CAO's branch.

(iii) Whether PLA files have been completed with T.R.6 Challans received from the
Focal Point Banks.

(iv) Whether intimation of refunds received in CAO's office were duly linked with
original payments in scrolls or ledgers or register posted from scrolls. Fraudulent cases
or other irregularities may be looked into.

(v) The credits in respect of selected periods from P.L. account of assessee during
local audit of factories received from CERA parties during the previous month should be
verified by way of tracing the credit entries into records of PAO/CAO with reference to
Bank scrolls or ledger or register posted from scrolls. Cases of failure in tracing
significant credits should be examined in detail.

(vi) The position of reconciliation of receipts and refunds may be reviewed, to ensure
that the CAO has taken prompt action in reconciling the department figures with those
booked by PAO and the difference, if any, have been properly analysed and steps taken
for their settlement.

(vii) Number and amount of challans which were entered into the main scroll from the
branch bank scrolls after (a) one week and (b) after one month may be looked into to find
out delays in actual credits to Government Account. Significant irregularities after check
with PAO regarding delays in actual date of credit may be pointed out.

23.6.8 Delays by public sector banks in remitting duty collections:

The excise duty collection in the branches of Banks are consolidated by the
branches and remitted to the State Bank of India or Reserve Bank of India for credit to
Central Government account. The Reserve Bank of India in its letter of 27 May 1985
had laid down a procedure whereby interest in cases of delayed remittances were to be
paid to Government at the rate of 5 per cent per annum for the period of delay. The
period of delays may be highlighted in the following format: -

Period of delay No. of Amount involved Amount of interest at 5 per

cases (Rs. in crore) cent (Rs. in lakh)

Between 8 and 15 days -- -- --

Between 16 and 30 days -- -- --
Between 31 davs and 1 year -- -- --
Between 1 year and 2 years -- -- --
Between 2 years and 3 years -- -- --
Above 3 years -- -- --
Total -- -- --

211
 It is clear that with the volume of transaction involved in the checking process,
prescribed by the department, the work can be done effectively only with the use of
computers. Action taken in this regard by the department could be a subject matter for
audit comments.

c9Reconciliation ofrevenuereceipts

(i) Crhe Public Accounts Committee (1987-88) in their 11Oth Report (8th Lok Sabha)
had recommended that the Ministry of Finance should prescribe a time limit for receipt
of the monthly revenue statement from the Range Offices for reconciling them with the
figures of revenue collection posted in the accounts of the 'Pay and Accounts officers of
the Commissionerate from documents received from the Banks.

Test check in audit may reveal that in number of Commissionerates, this work is
not being done for years. The revenue collections not verified may amount to crore of
rupees.)

(ii) Results of reconciliation already done

It may be seen whether the prescribed verification/checks are effective or system

runs more on trust than by verification and control.

(iii) Verification of refunds of revenue

It may be seen whether (a) verification of refunds of revenue was being done or
not; (b) the amount of refunds was being verified; (c) monthly statement of refunds were
being received from the Divisional Offices or not; and (d) watch over receipt of the
statement from Divisional/Range Officers was being kept.

23.7 Audit of Range office/Divisional office

23.7.1 Records to be maintained at Range Office

(i) Register of proformae received and registration certificates issued to: -

(a) manufacturing units

(b) ware houses

(c) first stage dealers and second stage dealers

(d) service providers

(ii) Survey book for identification of new assessees.

(iii) Demand register (Form 335J ) - Details of show cause notices issued, demands
adjudicated, demands confirmed/realised/outstanding for coercive or persuasive action.

(iv) Register to keep watch over receipt of Monthly/Quarterly Returns (RT 12IERl).

Cv) Register to keep watch over provisional assessment cases

212
(vi) Register of irregularities involving non levy/short levy of duty noticed during
scrutiny of monthly/quarterly returns.

(vii) Records of exports made under claim for rebate.

(viii) Records of exports made under bond.

(ix) Records of miscellaneous receipts.

(x) Records of goods confiscated and their disposal.

(xi) Records dealing with Internal audit memos.

(xii) Records dealing with CERA memos.

(xiii) Record of declarations on MRP system of valuation received from the assessees
and record of declaration from units availing SSI exemption.

(xiv) Records dealing with statistical data and returns concerning MTR to divisional
office and Commissionerate.

(xv) RegisterlRecord of booking and adjudication of offences and penalties.

(xvi) Record of visits made to assessee units for verification of stock (PBC checks etc.)
and for other purposes.

(xvii) Cases of demands sent for certificate action/to recovery cells .

./

(xviii) Assessee wise correspondence file dealing with excise cases.

(xix) Register of ER 1 and ER 2 forms issued.

(xx) Preparation ofTR-6 files for CAO Office.

(xxi) Register of running bond account for export of excisable goods.

(xii) Register of "Undertaking" furnished by manufacturer - exporter

(xxiii) Register of CTI and CT2 certificates issued

(xxiv) Other records as prescribed by Board/Commissioner.

23.7.2 Points to be seen in audit

The checks to be exercised at the range/division offices is a check of the internal

controls exercised by the department.

(i) Check that all declarations in respect of issue of registration certificate by the
manufacturers, ware house owners, dealers or service providers are on record and
requisite registration certificates issued without delay (Work shifted to Divisional Office
from 2002).

213
(ii) There is a system in vogue to identify potential cases for registration (Work
assigned to Divisional Offices from 2002).

(iii) All demand cases are raised and adjudicated promptly.

(iv) Proper records are maintained in respect of receipts and scrutiny of

monthly/quarterly returns of production, clearance and duty payments.

(v) All cases of delay in payment of excise duty made on monthly basis are taken up
promptly for initiating action under rule 8 of the Central Excise Rules, 2002.

(vi) Correspondence files are complete in all respect and no action is pending against
the assessee.

(vii) Demand cases sent to Recovery Cells are regularly watched through

23.7.3 Records to be maintained by Divisional office

(i) Registration of manufacturing units and dealers.

(ii) Records (including bond in proper form) relating to provisional assessments

requested by the assessee and allowed by the Asstt. CommissionerlDy. Commissioner
(Rule 7).

(iii) Records of defaulter assessees making payment of duty on monthly basis under
rule 8 and action taken thereon under the rules.

(iv) Records for allotting New Central Excise registration Number based on PAN of
Income Tax.

(v) Records of export (including letter of undertaking furnished by the manufacturer

exporter and bond with security and surety by merchant exporters) clearing oods under
claim of rebate/under bond without payment of duty to all countries other than Nepal and
Bhutan. Details of ARE I and II, CT I and CT II issued to the exporters.

(vi) Records of export (including letter of undertaking furnished by the manufacturer

exporter and bond with security and surety merchant exporters) clearing goods under
claim of rebate/under bond without payment of duty to all countries other than Nepal and
Bhutan. Details of ARE I and II, CT I and CT II issued to the exporters for exports to
Nepal and Bhutan.

(vii) Records of adjudication cases for further review to file appeal.

(viii) Record of bonds, of ARE I, II, CT I, II and other relevant documents for exports.

(ix) Other records as prescribed by the Board or Commissioner.

23.7.4 Audit checks at Divisional Office

It may be seen that: -

214
(i) All declarations in respect of issue of registration certificate by the
manufacturers, ware house owners, dealers or service providers are on records and
requisite registration certificates issued without delay (Work shifted to Divisional Office
from 2002);

(ii) there is a system in vogue to identify potential cases for registration (Work
assigned to Divisional Offices from 2002);

(iii) the bond furnished by the assessee requesting provisional assessment are on
proper form, with such surety or security and that the Deputy Commissioner of Central
Excise/ Asstt. Commissioner of Central Excise has taken all efforts to finalise the
provisional assessment at the earliest and recover the differential duty with interest (Rule
7). The extension granted by the Commissioner for finalisation do not exceed six
months or for the period beyond six months, the permission of the Chief Commissioner
of Central Excise is obtained;

(iv) the refund, if any, becoming due as a result of finalisation is made according to
the provisions contained in rule 7(5) and 7(6) of the Central Excise Rules, 2001;

(v) whether there is a proper system in vogue to keep a watch over the assessees
defaulting payment of excise duty by due dates and to take appropriate action there
against under the rules;

(vi) whether all the applications for obtaining allotment of new Central Excise code
number have been disposed off without any delay;

(vii) whether procedure for exports of excisable goods under rule 18, 19 and 20 of the
Central Excise Rules and notifications (4112001 CE (NT), 42/2001 CE (NT), 43/2001
CE (NT), 44/2001 CE (NT), 4512001 CE (NT), 46/2001 CE (NT) all dated 26.06.2001)
issued thereunder as effective from 1 July 2001 and as amended thereafter are followed
by the asses sees and necessary checks undertaken by the Divisional officelRange office;

(viii) whether bonds furnished by the assessee were on proper form with sufficient
surety and security, were accepted and kept in safe custody of the Divisional office. The
bonds did not lapse; and

(ix) whether all show cause notices are adjudicated within stipulated period of one
year (except in cases where Deputy Commissioner/Assistant Commissioner could not
adjudicate in spite of their best efforts). Details of efforts made justifying the non
finalisation may be checked in audit.

23.7.5 Audit checks at the Commissionerate Offices

The following documents should be audited/reviewed during the audit of the

Commissionerate offices: -

(i) Records of adjudication and offence cases and demands and recovery remission
and write off.

(ii) Appeal files bearing on principle involved in decision to appeal or not.

(iii) Refunds, rebate and drawback cases and acknowledgement for receipt of refund.

215
(iv) Cases of refunds of excise duty on petrol supplied to foreign embassies and
mission in India, the President, the Vice-President and Governors.

(v) Records of Internal Audit Department.

(vi) Records relating to classification and valuation cell, if any.

216
 Annexure 23.1

DEVOLUTION OF DUTIES
(CERA Field Parties)

SISTANT AUDIT OFFICER I

1. Factory visit.

2. Interaction with assessee regarding goods manufactured, their classification,

purchase pattern, marketing and sales pattern etc.

3. check of classification (former 173B Declarations) which would cover the

following aspects: -

(i) Study of manufacturing process, flow charts, pamphlets, marketing

literature, packing slips etc. in order to determine when and where excisable
products emerge.

(ii) Checking of emergence of by-products and intermediate products.

(iii) Examination of classification of each excisable product and its rate of

duty.

(iv) Checking of exemption/effective rate of duty of the product with

reference to Notifications.

(v) Chemical Examiners Report, if any.

4. Correspondence with Central Excise Department and other general

correspondence.

5. Check of CENV AT invoices/Bill of Entry with reference to Cenvat Register (if

the volume of transaction is heavy, this item of work should be shared with AAO
II1Section Officer).

6. Scrutiny of show cause notices issued and adjudication order thereof.

7. Critical analysis of trial balance, manufacturing, trading and profit and loss
account and Balance Sheet and also other commercial accounts available along with
Chairman's speech at AGM.

8. Reports of Management Information System like physical verification of stock,

list of fast/slow moving items and written off stores etc.

9. Scrutiny of fixed assets Register to check inter-alia: -

(i) Whether there was any capitalisation of Plant and Machinery etc. on
which Cenvat credit was availed.

(ii) Depreciation claimed under Section 32 of the Income Tax Act and its
effect on Cenvat credit availed on capital goods

217
 (iii) Sale of Cenvat availed capital goods.

10. Study of input output ratio wherever feasible and declared by the assessee and
correlation of consumption of raw materials with production accounted for in the
production records (erstwhile RGI)).

11. Scrutiny of special records maintained in factories producing sugar, mineral oil,
matches etc., checking of storage and transit loss, if any.

12. Scrutiny of Debit Notes and Credit Notes.

13. Checking of Remission of duty.

14. Correlation of Monthly Returns ERI (Erstwhile RT 12/RT 13) with various other
returns/statements filed with other statutory/non-statutory authorities such as Sales Tax,
Income Tax, DGTD, Textile Commissioner, Export Promotion Council etc.

15. Effect of modernisationlupgradationldiversification, if any undertaken during the

period covered by audit.

16. Study of Provisional Assessment cases and finalisation thereof.

17. Verification of objections raised in Internal audit /Special audit under EA-2000.

18. Assisting Sr. Audit Officer/Audit Officer in finalisation and drafting of Local
Audit Report.

19. Drafting of inspection report and its timely despatch to local headquarters office.

20. Assisting, guiding and helping other party member in their execution of work.

21: Preparation of assessee's profile.

22. Verification of previous Local Audit Report and updating the figures in SOFIDP.

23. To discharge duties assigned to Sr. Audit Officer/Audit Officer in case AAO-I is
incharge of the party.

24. Any other item of work assigned by the Receipt Audit Officer/CERA
Headquarters.

CERTIFICATE OF CHECK

Certified that all the checks prescribed in Revenue Audit Manual relevant to the
present circumstances have been exercised to the extent indicated.

ASSISTANT AUDIT OFFICER-I

218

-
ASSISTANT AUDIT OFFICER II/SECTION OFFICER

1. Factory visit.

2. Checking of Central Excise Registration Certificate.

3. Checking of transaction value which includes critical analysis of: -

(i) Marketing pattern.

(ii) Discount structure and scheme of commission payment.

(iii) Inter unit/sister concern transfers and check of cost construction

statements.

(iv) Sales through depots, if any, and its transactional value.

(v) Sales through related person, if any.

(vi) Check of sales invoices/depot InVOICeSwith reference to purchase

orders/contracts/agreements for sale.

(vii) Scrutiny of cost accounts records and cost audit report, if any.

4. Checking of Raw material account which would involve: -

(i) Correlation of materials/goods receipt note along with private stock

account.

(ii) Study of material rejection notes and their final disposals.

(iii) Check of material issue notes.

(iv) Checking of purchase invoices/bill of entries in correlation of figures in

purchase account.

5. Checking of production, clearances and sales records which would involve: -

(i) Correlation of production and sales figures of Production Records/Sales

records, monthly returns etc.

(ii) Correlation of production (from RGIlDaily Stock Account) and sales

figures with Balance Sheet.

(iii) Analysis of sales accounting.

(iv) Checking of sales return with delivery challans and correlation with credit
notes and its effect on Cenvat.

(v) Reconciliation of production figures with job cards and work orders.
production records with commercial records, raw material account etc.

219
6. Scrutiny of RSP (Section 4A) declarations and assessment thereof.

7. Checking of clearances under Bond i.e. AREI (previous AR 4), rebate etc. and
rebate claims sanctioned by department. Sufficiency of Bonds and Bank Guarantees and
their validity.

8. Checking of records relating to duty free clearances of goods other than export,
clearances to 100 per cent Export Oriented Unit, free trade zones etc., clearances at
concessional rate of duty in terms of Central Excise (Removal of goods at Concessional
Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, clearance of non-
excisable goods, if any.

9. Checking of job work transactions.

10. Register of goods received for repairs (erstwhile Form IV Register and D3
declarations) and reconditioning.

11. Clearance of samples.

12. To assist AAO I in checking of CENVAT invoiceslBOE with CENVAT if the

volume of work in this regard is heavy.

13. Checking of assessments i.e. tallying duty payable with duty paid.

14. Checking of monthly payment of duty.

.:
15. Checking of Range Records - 3351 and 335D Registers.

16. Scrutiny of records relating to storage/transit loss and scrap accounts.

17. Whether any service attracting service tax provisions was undertaken and if so
records thereof.

18. Check of warehousing records.

19. Any other item of work that may be entrusted by SAO/ AO and AAO- I.

CERTIFICATE OF CHECK

Certified that all the checks prescribed in Revenue Audit Manual relevant to the
present circumstances have been exercised to the extent indicated.

ASSISTANT AUDIT OFFICER-II/SECTION OFFICER

220
SENIOR AUDITORJAUDITOR

1. Collection of figures from the PLA and Cenvat registers for the purpose of month
marking.

2. Compilation of production and clearance figures with details of duty discharged

in PLA and Cenvat records for tallying duty payable with duty paid. For the entire
period covered in audit.

3. Check of TR6 challans with PLA and collection of remittance details for marked
months.

4. Check of Bond register. Checking of entries and verification of figures in bond

register.

5. Preparation of Audit Memo and keeping of records.

6. Assisting the SAO/AO, AAO-I and AAO-II.

7. Any other item of work assigned by the SAO/AO, AAO-I and AAO-II.

CERTIFICATE OF CHECK

Certified that all the checks prescribed in Revenue Audit Manual relevant to the
present circumstances have been exercised to the extent indicated.

SENIOR AUDITORJAUDITOR

221
SENIOR AUDIT OFFICER/AUDIT OFFICER

1. Factory visit.

2. Discussion with factory officials in respect of manufacturing process, marketing

pattern, discount structure and preparing/obtaining of write-ups thereof.

3. Preparation of action plan. Allocation of the work among party members

depending upon the work load, if necessary he may take up any item of work at his
discretion (Either in respect of classification or valuation or adjudication cases depending
upon the importance of the work).

4. Planning for the audit execution.

5. Technical guidance, coordinating with party members and providing leadership

in the conduct of audit.

6. Scrutiny of work done by the party members and progress thereof.

7. Conducting of risk analysis and identification of areas where the attention of

audit is to be focussed.

8. Interpretation of statute/rules and regulations on higher and review angle.

9. Cross checking of excise data with the commercial accounts.

10. Scrutiny of refund files.

11. Discussion on the points noticed and converting them to tenable objections.

12. Verification of paras in the Previous Local Audit Reports and updating of facts in
each para.

13., Review of local inspection report drafted by the Asstt. Audit Officer. In case
there is no Asstt. Audit Officer available the drafting of report; as well as discussion
thereon with departmental officers.

14. Any other work assigned by CERA Headquarters and Group Officer.

CERTIFICATE OF CHECK

Certified that all the checks prescribed in Revenue Audit Manual relevant to the
present circumstances have been exercised to the extent indicated.

SENIOR AUDIT OFFICER/AUDIT OFFICER

222
 Annexure 23.2

List of records

1. Financial Records 1. Purchase Book

2. Sales Book
3. Cash Book
4. Day Book
5. Petty Cash Book
6. Bills Payable Book
7. Bills Receivable Book
8. Journal and Vouchers
9. Purchase Return Book
10. Sales Return Book
11. Cost Audit Report
12. Management Audit Report
13. Debit Notes
14. Credit Notes
15. Fixed assets register
16. Register of loans
17. Debtors Ledger
18. Creditors Ledger
19. General Ledger
20. Register for advances to suppliers
21. Register of Security, Bonds
2. Store Records 1. Purchase order
2. Receiving Report of material including weighment slips
3. Bill of material
4. Material rejection slipslDebit note
5. Material return note
6. Bin card
7. Stores Ledger
8. Material transfer note
9. Register of non moving store/stock
10. Obsolete stock cards
11. Requisitions for supply of material
12. Material issue slips
13. Lab. Test reports
3. Production Record 1. Raw material account
2. Production slips
3. Production floor charts
4. Daily production statements
5. Shifts records
6. Breakdown man hour lost records
7. Goods sent to Job workers
8. Semi finished goods received for job work
9. Goods received for repair, reconditioning
10. Daily wastage record
11. Batch Number allotment register

223
 Clearance of goods 1. Gate register
2. Gate pass/Delivery challan
3. Weighment slip
4. Despatch advice
5. Machine log book
6. Log book of captive generator plant
7. Physical stock verification statement
8. Scrap register
9. Tender files
10. Comparative quotation charts
11. Delivery note
12. Marketing files
13. Production performance chart
14. Sales performance chart
15. Sale order register
16. Invoice register/Sale Register
17. Price lists (final products and spare parts)
18. Technicalliteraturelbrochures
19. Sales returns/credit notes/goods returned for repairing
20. Work order note
21. Modvatted material used in repair
5. Report/Return/Stat 1. Letter of credit/LC Register
ements 2. Bank statement and reconciliation statement
3. Sales tax Return
4. Income tax return
5. Energy Audit Report
6. Tax Audit Report
7. Internal Audit Report
8. Special Audit Report
9. Special Investigation Report
10. LS.O:-Audit Report
11. Prospectus of the company with M.O.A, A.O.A.
12. Annual Reports
13. Cash Vouchers
14. RBI's approval for payment of Royalty (to foreign
company
15. Cost Audit reports
6. Privilege 1. Minutes of Board's meeting
Documents 2. Dealer's agreement
3. Consignment agents agreement
4. Inspection notes
5. Inter office memos
6. Process charts
7. Pollution control agreement
8. Hire purchase agreement
9. Leasing agreement
10. Project reports
11. Ground Plan of Plant
12. Report to ISI, NSSO

224
 Audit Checks

(Questionnaire Form)

Annexure 23.3
1. Registration of assessee Date of audit 1 _

Sr. No. What to check YININA* Comments

(i) Whether the assessee is holding a
valid registration certificate issued
by the competent authority for
manufacture of excisable goods
(ii)( a) Whether the registration certificate
is issued by the competent authority
for the premises where
manufacturing is undergoing
(b) In case assessee has different
..
premises requmng a separate
registration, whether separate
registration certificate has been
obtained for each of such premises
(iii) The registration certificate indicates
the goods being produced with
correct classification
(i~)ta) Whether there is any change in the

(b)
Constitution of the firm/company
If so, the change has been duly
I
informed to the Range Officer
within one month
(v) Is there any other product (excisable
goods) being manufactured which is
not entered 111 the registration
certificate
(vi) Whether new excise registration
number based on PAN number of
Income tax has been allotted to the
assessee
(vii) In case of transfer of business to
another person, has the transferee
got a fresh registration certificate or
not
(viii) Has registered person ceased to
carry on operation. If so, whether he
has got him self de-registered by
making declaration on proper
proforma (Annexure In to
notification No.35/2001 CE (NT)
dated 26.06.2001)

225
(ix)(a) Has the assessee ever been found to
have committed breach of any of the
provisions of the Central Excise Act
or the rules made thereunder or has
been convicted of an offence under
Section 61 read with Section 109 or
with Section 116 of the Indian Penal
Code, 1860.
(b) If so, has the Assistant
Commissioner/ Deputy
Commissioner of Central Excise
revoked or suspended the
registration certificate granted under
rule 9 of the Central Excise Rules,
2001 or rule 174 of the Central
Excise Rules, 1944
(x) Any other point(s) specify
Checked by Signature:

Name:
I
Designation:

*Y- Yes
N- No
NA - Not applicable

226
2. Monthly/Quarterly (RT12 or ERI) Date of audit 1 _

Sr. No. What to check YININA* Comments

(i) Whether prescribed proforma is used
and all the columns in the returns
have been filled correctly
(ii) Whether all returns are filed by the
due dates (1oth of the following
month, on or before zo" of the
month after the end of quarter by
asses sees availing exemption on
basis of value of clearance)
(iii) Whether summaries given In the
returns tallies with
(a) Stock Register of excisable
goods
(b) Cenvat Account
(c) PLA Register
(d) Sales Register & Invoice
(e) Register for goods received back
for repair etc.)
(t) Exports Records
(g) AR3A Records
(iv) Whether value of exempted goods
are shown correctly
(v)(a) Whether delayed payment, if any
shown correctly and interest due
correctly paid
(b) If not, whether action as required
under rule 8(4) of Central Excise
Rules, 200 I taken
(vi) Whether self assessment
/

memorandum signed by the

authorised person
(vii)(a) Whether assessment IS made on
provisional basis
(b) If so, whether necessary procedure
followed
(viii) Whether any duty has been paid
under protest
(ix) Whether any payment has been
made against any order in original or
for any other reasons
(x)(a) Whether any adjustment made to ,

opening stock, closing stock, etc.

(b) If so, has the duty effect been
checked

227
(xi) Are there any abnormal transactions,
like sale of waste scrap or capital
goods, etc. in any month and duty
paid correctly
(xii) Any other point(s) specify
Checked by Signature:

Name:
Designation:

228
 3. Classification of goods Date of audit 1'- _

Sr. No. What to check YININA* Comments

(i) Whether complete range of
commodities manufactured by the

II (ii)(a)
assessee has been shown with proper
classification
Whether the classification of the
product is final
Cb) In case of provisional assessment,
what is the stage of pendency and
the reason for undue delay
(iii)(a) Whether any intermediate goods

(b)
have been manufactured
Whether the goods have acquired a
I
new character making it an
identifiable new excisable product
(c) Whether they are assessed to duty
(iv) Whether by-products, waste
products and products taken into the
reprocessmg cycle have been
properly classified and charged to
duty, wherever due
(v)(a) Whether the goods have been
described by their trade
nomenclature
(b) If the description m invoice IS
different from what is given in Tariff
does it affect the classification or
rate of duty
(vi)(a) In cases where classification/rate of
duty IS dependent on technical
advice, whether the same has been
obtained or not
(b) Whether the advice has been
critically examined to ensure that
classification/rate of duty applied is
correct
(vii)(a) Whether declaration if any made to
the department in respect of any
particulars such as class,
composition etc., is in accordance
with the sales/marketing/advertising
literature of the assessee
(b) If not, whether it has effect on
I classification I
229

-
(c) If necessary is there any need to
advise the other field parties to
examine the matter further
(viii) Whether the conditions of
exemption notification are satisfied
and adequate evidence to that effect
is available
(ix) Is there any need for seeking the
advice of the departmental
specialist, if there is doubt
(x) Any other point(s) specify I
Checked by Signature:

Name:
Designation:

230
4. Purchase orderlW orks order Date-of audit 1 _

Sr. No. What to check YININA* Comments

(i) Whether all the items in purchase
order procured by the assessee are
manufactured in the factory
(ii) Amount of order, date of execution,
and despatch schedule checked
(iii) Conditions included In purchase
order are verified as under: -
(a) Whether escalation clause is there
(b) Whether assessee has recovered/raised
invoice on account of the differential
value
(c) Whether duty has been paid on this
amount
(d) Whether condition for warranty etc. is
included
(e) If so whether assessee has recovered
warranty charges from the customers
and included in the assessable value
(t) Whether erection, commissioning other
charges are receivable and these are
includible and included in assessable
value.
(g) Whether taxes are to be paid by
assessee such as S.T., C.S.T., Octroi
etc. same are recovered and paid to
Government account
(h) Whether any bought out items to be
procured by assessee, sent directly to
site. If cenvat taken in the factory
whether value added in invoice
(i) Whether all the sale lI1VOlCeS
debit/credit notes commercial invoices
issued and checked with purchase order
U) Whether any amount recovered as duty
but not paid to Government Account.
(k) If any sub-contract has been given to
the job worker whether duty paid
correctly by job worker or by the
assessee as the case may be.
(1) Whether any raw material, mould,
drawing design supplied by customers
and whether value of the same has been
included for Central Excise purpose.
(iv) Any other point(s) specify
Checked by Signature:

Name:
Designation:

231
s. Raw material account Date of audit 1'-- _
Sr. No. What to check YININA* Comments
(i) Have you checked receipt of some
important raw materials with .
reference to:
(a) Purchase vouchers
(b) Railway receipts
(c) Similar documents for road transport
(d) Have you checked these with the
relevant payment documents
(ii) Have you checked the issue of
specified raw materials
(a) To the manufacturing department
with reference to issue slips;
(b) Are there any sales of raw materials
cleared as such
(c) If so appropriate amount of duty is
paid
(iii) In case the raw material is produced
by the assessee himself, have you
exercised similar checks for the
- mam components/ingredients
purchased from the market out of
which the specified raw material is
produced.
(iv) Have you verified the changes in the
cost of raw materials etc. This is
with a view to assess their impact on
the assessable value of finished
products especially in cases where
prices are on the basis of costing.
(v) Have you verified the cost with the
relevant documents
(v)(a) Whether write off/destruction of any
raw material has been claimed
(b) If raw material was
rejected/damaged before put to use.
(vi) Have you cross checked the raw
material account with the returns
submitted by the manufacturer to the
banks (in connection with loan)
regarding receipt, consumption and
stock -in-balance of varIOUS raw
materials.
(vii) Have you made a study of :

232
 (vii)(a) The ratio of major raw materials to
finished product
(b) In case of wide variation between
the ratio of two different periods, is
there a case for comments in audit.
(viii)(a) In case of fire whether the cost
including element of excise duty of
raw material lost is claimed/received
from the insurance company.
(b) If so, the excise duty element so
recovered is paid to the Government
account
I (ix) Has the assessee obtained
permission of the Department, m
respect of destruction of raw
material, if any, no more usable and
written off
(x) Any other point(s) specify
Checked by Signature:

Name:
l
Designation:

233

--
 6. Record of production Date of audit 1 1
3S-
Sr. No. What to check YININA* Comments
(i)(a) Whether the Central Excise
Department has issued any
guidelines or the manufacturer has
himself made any declaration
indicating correlation between
'input' and 'output'
(b) If so, indicate reference
(c) Whether the production is broadly in
accordance with the declarations
(ii) Whether the production account is
cross checked with the daily
manufacturing reports on a selective
basis for a few days covering each
month. (The percentage for Record
Based Control units has to be higher
than for Production Based Control
I units).
Ir(~il~'i)~-~W~h~et~h-er-t~he-m-an-u-£~a-ct-u-ri~n-g-re-p-o-rt-s~-----~--------~
are comparable with the production
plan of the manufacturer
(manufacturing report may be called
by various names such as production
slip/job card etc.)
(iv) Whether the production figures in
the Central Excise records and
returns tallies with the records
maintained or returns submitted by
the assessee to other departments
such as D.G.T.D., Banks with which
goods are hypothecated, Company
Law Board, Department of Labour,
Textile Commissioner, Export
Promotion Council, Productivity
Council, Inspector of Factories,
Drugs Controller, Sales Tax
Authorities, Director of Small Scale
Industries etc.

234
(v) Whether the account of
containers/packages verified for
cross-checking of production. (The
check is likely to prove useful in
respect of packages which are
costly; An account of these IS
invariably maintained by the
assessee).
(vi) Whether production IS compared
with information available in the
Cost Audit Reports prepared by the
Auditors of the Company in respect
of selected commodities
(vii) If some 'Incentive Bonus Schemes
are In operation In the factory,
whether the Bonus paid to the
workers, commensurate with a
corresponding Increase In
production exhibited In the
production record
(viii)(a) Whether there is any investment in
expansion of the production capacity
(b) Whether this has led to any increase
in production or not. (Balance Sheet
will be useful in checking on any
investment In expanding the
production capacity).
(ix)(a) Whether assessee has declared input
output ratio In respect of goods
exported, to the DGFT or other
authorities.
(b) Whether there is prima facie a case
for fixing norms of production
(erstwhile Rule 173 E) after
studying in some depth, other factors
of production such as fuel
consumption, labour employed,
wages paid etc.
(c) Whether there IS a wide gap In
production in any particular period.
(x) Whether production IS being
accounted for in production record
on daily basis or whether the entry
In production account IS being
postponed without valid reasons
(xi) Whether proper record on daily
basis of production maintained by
the assessee as per rule 10 of the
Central Excise Rules, 2001
(Erstwhile RGI register)

235
(xii) Whether the first and last page of the
book has been authenticated by the
manufacturer or his authorised agent
(xiii) Whether the opening balance tallied
with that of last month/year
(xiv) Whether quantity of goods
manufactured are noted correctly
and supported by document duly
signed by the authorised officer of
assessee.
(xv) Whether goods removed on payment
of duty/exempted are correctly
accounted for
(xvi) Whether for goods removed for
storage without payment of duty
under erstwhile rule 47, permission
obtained from the Commissioner
(xvii) Whether value and duty paid and
invoice nos. etc. has been correctly
noted and same tallied with the
PLAlCenvat Account and sales
InVOICeS
(xviii) Whether permission from
Commissioner has been obtained for
not entering production when the
production is nil
(xix) Whether closing balance correctly
carried forward to next month
(xx) Whether the quantity
manufactured/cleared/value/duty
paid/Invoices nos. etc. tallied with
the RT-12/ER I returns
(xxi) Whether record is kept for 5 years
after financial year to which such
record pertains
(xxii) Any other point(s) specify
Checked by Signature:

Name:
Designation:

236
 7.
7.1
Clearance of goods
When duty payable Date of audit 1-------------1
Sr. No. What to check YININA* Comments
(i)(a) Whether assessee is maintaining a
proper record of production and
clearance on day to day basis
(b) Whether the clearances broadly
tallied with the figures in the sales
ledger or other summary record
maintained to show sales and
clearances.
Cc) Whether conditions stipulated under
section 4(I)(a) are satisfied for
charging of duty on 'transaction
value'
d) In case where the marketing
organisation IS different, whether
Valuation Rules are correctly
[ applied
(ii) Whether the quantities of clearances
as per delivery notes, or other
covering documents tally with the
quantities cleared according to
excise invoice, in case the assessee
IS USing, In addition commercial
invoices for clearances of excisable
goods
(iii) Whether clearances to depots etc.
are checked with reference to
transfer slips etc., since final sale is
not effected from the factory gate
(iv) Whether clearances made tallied
with reference to internal slips/log
accounts for captive consumption
(Y) Whether clearances of excisable
goods for destruction/denaturation
comprise of a high percentage of
such goods to the production.
(yi) Whether entries In the monthly
returns when compared with the
production and clearance accounts,
,I has shown any discrepancies
(vii) If the goods have been cleared for
export, whether proof of export have
been received and admitted

237

--
 (viii)(a) If the goods have been cleared under
bond to merchant exporter check
whether acknowledgements of
goods received by the consignees
are available
(b) If not, whether follow up action to
raise demands has been initiated
(c) Whether there is any delay aspect, in
this respect
I (ix) Whether all particulars like the date
and time of physical removal of
goods from the factory tallied with
reference to R.R./Goods Receipts
issued by the earner. Check
whether the correct rate of duty has
been applied whenever change in
rate of duty takes place
(x) Any other point(s) specify
Checked by Signature:

Name:
I
Designation:

238
 7.2 Goods cleared without
payment of duty
Date of audit 11-- _
Sr. No. What to check YININA* Comments
(i)(a) Whether exemption IS correctly
availed of by the assessee
(b) Whether notification No. and date is
correctly mentioned
(ii) Whether conditions laid down in
exemption notification have been
fulfilled
(iii) Whether clearance of goods made
before obtaining the CT2/CT3
certificate from customer where-
ever applicable
I (iv)(a) In case of clearances of exempted
goods manufactured out of common
inputs for excisable and exempted
goods whether assessee has reversed
cenvat credit equal to 8 per cent of.
duty
(b) Whether availed modvat/cenvat
credit on inputs used for exempted
goods
(v)(a) Whether exemption based on Dy.
Chief Chemist Report?
(b) If so, whether same is obtained and
kept on records
(vi)(a) Wherever end use certificate IS
required
(b) Whether end use certificate IS on
record
(vii) Any other point(s) specify
Checked by Signature:

Name:
Designation:

239
8. Valuation - Transaction value Date of audit 1 _

Sr. No. What to check YININA* Comments

(i)(a) Whether the sale of goods is to an ,
unrelated buyer
(b) Whether price IS the sole
consideration for sale
(c) Whether delivery of goods IS at
factory gate
(ii) If any of the above conditions are
not satisfied whether the assessable
value has been arrived at under the
Valuation Rules
(iii)( a) In case goods are delivered at place
other than the place of removal (i.e.
factory gate or warehouse) and
assessee and buyers are not related
and price is the sole consideration
for sale, whether cost of actual
transportation from factory gate to
the place of delivery is shown in the
invoice as recovered from the buyer
b) If yes, whether the assessee has
claimed deduction from the value
(I:) Whether assessee has shown his
actual cost so charged from the
buyer separately in the invoice for
not charging to duty
(d) If cost IS not shown separately
whether duty has been charged on
the cost of transportation
(e) If the assessee has the system of
pricing and sale at uniform prices
inclusive of equated freight for
delivery at factory gate or elsewhere, .
the deductions for freight will be
permissible. Has the assessee used
this practice
- .') Whether all other considerations
flowing back from buyer to the
assessee are charged to duty (as per
section 4) on the following: -
l:.al Warranty charges
l~) Advertisement charges
~) Interest on deposits having nexus on
price fixation

240
 (d) Recovery of escalated pnce
difference later on
(e) Extra discount in lieu of interest on
advances having nexus on pnce
fixation
(t) Taxes claimed as deduction which
are actually neither paid nor payable
(g) Packing charges
(h) Marketing and selling organisation
charges etc.
(v) Has the independent status of the
dealers been checked with reference
to agreement! actual practice and
definition of related persons which
includes "Inter connected
undertakings" as given m the
Monopolies and Restrictive Trade
Practices, 1969 and such other laws,
as may be relevant
(vi) Whether trade discounts actually
claimed and allowed, have been
passed on to the buyer at the time of
removal of the goods.
(vii) Whether discounts claimed and
allowed, are admissible
(viii)(a) Whether debit notes! supplementary
invoices are issued by the assessee
to any of the dealers!customers
(b) Whether these debit notes!
supplementary mvoices have the
effect of changing the assessable
value because of a possible 'kick-
back' (Scrutiny of customer-wise
ledger maintained IS useful m
carrying out this check).
(c) Whether any wholesale dealer or
distributor is shown as a debtor
(d) Whether any of the discounts given
have been withdrawn treating them
I as "Sundry Debtors"
I (ix) Whether sale value of manufactured
goods shown in the documents viz.
the Balance Sheet!Profit and Loss
Account broadly tallied with the
value of goods shown in the invoices
(x)(a) Whether determination, of value
under the 'Valuation Rules', where
ever warranted has been correctly
I done

241
 (b) Whether valuation has been arrived
at on the basis of cost of production
plus margin of profit. From 1 July
2000 the valuation has to be arrived
at on the cost of production plus 15
per cent (10 per cent from 12
September 2003)
(c) Whether all the costing components
have been taken into account
(xi)(a) Whether costing data submitted by
the assessee checked with actual
expenses
(b) Whether change in rate of electricity
power or other main items have a
bearing on cost value
(xii) Any other point(s) specify
Checked by Signature:

Name:
Designation:

242

----
9. Sales invoices Date of audit 1 ---"

Sr. No. What to check YININA* Comments

(i) Whether all the invoices are serially
('
numbered and number intimated to
department
(ii) Whether all the invoices properly
authenticated
(iii) Whether full description of goods
sold clearly shown in invoices
(iv) Whether all the columns filled-in
correctly with special reference to
transaction value, rate of duty,
amount of duty, etc.
(v) Whether transaction value tallied
with price settled as per the contract
(vi) Whether tariff headings & rate of
duty tallied with Tariff Schedule
(vii)( a) Whether any amount collected over
and above the assessable value other
than taxes and duties and
(vii)(b) If so, whether they are includible in
the assessable value
(viii) If there is any exempted clearance,
whether provisions of rule 6 of
Cenvat Credit Rules, 2001 followed
(ix) Whether duty equal to 8 per cent of
price of goods which was reversed
in case of exempted goods, has also
been collected from the customer
(this would be an additional
consideration)
(x) In case of depot transfer, whether
value shown correctly
(xi) In case of inter unit transfer, whether
value arrived at as per Central
Excise Valuation Rules, 2000
(xii) Whether depot invoices verified
(xiii) Whether any service rendered to
customer is subject to service tax
(xiv) Whether debits checked with
CENVAT/PLA register
(xv) Whether detailed abstract checked to
see correctness of monthly payment
of duty
(xvi) Whether invoices are compared with
commercial invoices maintained

243
(xvii) Whether invoices for payment of
duty on debit notes raised
(xviii) Any other point(s) specify
Checked by Signature:

Name:
Designation:

244

---
 10. Payment of duty Date of audit 1_' _

Sr. No. What to check YININA* Comments

(i)(a) Whether the assessee clearing the
goods after payment of duty under
rule 4 of the Central Excise Rules,
2001
(b) Whether clearing the goods on
payment of duty on monthly basis as
provided under rule 8 of Rules ibid
(ii)(a) Whether the assessee IS
manufacturing goods' falling under
chapter 62 of the Tariff
(b) If so, whether goods are
,
manufactured by job worker without
payment of duty and owner has
furnished a bond
Cc) Whether the registered person on
whose behalf goods are
manufactured by job worker has
paid duty correctly or
Cd) Whether the job worker has been
authorised to pay the duty leviable
from his own registered premises
ICe) Whether the job worker has under-
taken to comply with all the
provisions of Central Excise Rules
(iii)Ca) Whether time and manner prescribed
under rule 8 of the Central Excise
Rules 2001 has been correctly
followed
(b) Whether duty in respect of clearance
during the month of March is paid
by 31st March
(iv)(a) Whether, the assessee has availed
this facility in respect of duty paid
through PLA (Cash) only or
(b) Whether the payment of duty
through adjustment in Cenvat credit
is also made on monthly basis
(c) Has the assessee utilised. the credit
earned subsequent to the clearance
of final products and got the
unintended benefit
(v)(a) Whether payment of duty through
PLA has been made by due date
(b) Whether the assessee has defaulted
in making payment by due date

245
(c) If so, whether the assessee has paid
the dues alongwith interest at 24 per
cent for the days of default
(vi) Whether assessee is following any
other special procedure for payment
of duty under rule 15 of the Central
Excise Rules, 2001 and the
notification issued there under.
(vii) _Whether duty is discharged on all
goods cleared for exhibition/display
in India
(viii) Whether the assessee has collected
any amount shown as excise duty in
the invoice but not paid to the
Government thus attracting
provisions of Section 11D
(ix) Any other points(s) specify
Checked by Signature:

Name:
Designation:

246
11. Cenvat Credit (Input credit)
11.1 Invoice from Manufacturer Date of audit 1 _

Sr. No. What to check YININA* Comments

(i) Whether quantity m the input
invoices tallies with quantity m
Goods Received Note
(a) Whether credit IS taken of the
specified duty only
(b) Whether credit is taken of other
unspecified duties/customs duties
etc.
(c) Whether credit is taken of assessable
value
(d) Whether credit IS taken of .duty
paid/payable on HSD or LDO
(ii) In case of short receipt whether
proportional credit has been reversed
(iii) Whether inputs received are eligible
for credit
(iv)(a) Whether details of duty paid or
payable are given in invoice
(b) Whether duties of excise so paid
specified in Cenvat Rules
(v) Whether transport details are given
in the invoice
(vi) Whether mvoice IS properly
authenticated
(vii) Whether credit is taken more than
once on the same document
(viii) Whether credit taken on Xerox/extra
copy I
(ix) Whether credit taken tallies with
duty paid by the supplier
(x) Whether the assessee IS the
consignee
(xi)(a) Whether materials directly supplied
to job worker
(b) If so, whether credit has been taken
only after receipt of the entire
material from job worker
(xii) In case of materials sent to
jobworkers, whether entire quantity
was received back in factory within
180 days

247
 (xiii) Whether credit has also been taken
of the amount reversed (8 per cent)
under rule 6 (3)(b) of Cenvat Rules,
2001 in respect of exempted goods
(such credit are not admissible)
I (xiv) Whether inputs are in the category
of exempted goods
I (xv) Whether total duty credit taken
tallies with entries 111 profit/loss
AccountlRT 12IERI Returns
(xvi) Whether credit is taken in respect of
differential duty paid by the supplier
because of confirmation of demand
for extended period of 5 years under
section 11 A of the Act
(xvii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

248
 11.2 Invoice from dealers Date of audit 1<- --'

Sr. No. What to check YININA* Comments

(i) Whether duty passed on IS
calculated correctly with reference
to manufacturer's invoice
(ii) In case of second stage dealer
whether invoice is authenticated by
department
(iii) Whether the dealer is registered
(iv) Whether details of manufacturer,
suppJier/s details, mode of transport,
etc. correctly written
(v) Whether the original manufacturer is
a 100 per cent EOU/Importer - In
I case of importer, whether CVD
passed on is correctly worked out
(vi) Any other points(s) specify
Checked by Signature:

Name:
Designation:

249
11.3 Bill of Entry Date of audit IL- --'

Sr. No. What to check YININA* Comments

(i) Whether CVD was paid in cash or
debit through DEPB scheme
(ii) In case ofEDI Bill of Entry, whether
TR 6 challan attached
(iii) Whether credit IS taken only m
respect of CVD
(iv) Whether CVD calculated correctly
(v) Whether B.E. assessed provisionally
(vi) Whether Bills of Entry endorsed in
favour of the assessee by the
supplier importer
(vii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

250
11.4 Invoice from 100 per cent EOU Date of audit 1'-- _
Sr. No. What to check - YININA* Comments
(i) Whether credit has been restricted to
additional duty of Customs payable
on like goods when imported as per
CEGAT judgment in Vikrant Inspat
case
(ii) Whether all particulars are given
correctly in the invoices
(iii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

251
11.5 Credit on goods received as
Date of audit 1 _
returned goods to the factory

Sr. No. What to check Y/N/NA* Comments

(i) Whether goods are returned to the
factory for being re made, refined
reconditioned or for any other
purpose
(ii) Whether the assessee has disclosed
the particulars of such returns in his
records (D.3)
(iii) Whether evidence of duty paid on

(iv)
such goods are available
Whether credit has been taken in
I
Cenvat Account correctly
Cv) Whether duty repaid at the time for
clearance of such goods later on
I vi) In case the particular documents are
not available or procedure could not
be followed whether the CCE has
allowed clearance of goods subject
to conditions, being followed
vii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

252
11.6 Refund of Cenvat credit Date of audit 1__ ----''--- _

Sr. No. What to check YININA* Comments

(i) Whether assessee has been given
refund of Cenvat credit
(ii) If so, whether all the conditions
stipulated m Cenvat Credit Rules
fulfilled
(iii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

253
 12. Cenvat credit on capital goods Date of audit I
~----------------

Sr. No. What to check YININA* Comments

(i) Whether capital goods are eligible
for credit
(ii) Whether credit taken only to the
extent of 50 per cent during the first
financial year
(iii) Whether documents are proper
(iv) Whether capital goods are actually
received in the factory
(v) Whether capital goods other than
components, spares and accessories,
refractory material of Heading 68.02
sub-heading 6801.20 are In
possession and for use of the
manufacturer when credit taken to
the extent of balance 50 per cent in
subsequent year
(vi) Whether capital goods are used
exclusively for the manufacture of
exempted goods
(vii) Whether depreciation claimed under
Section 32 of the Income Tax Act,

l 1961 on the element of excise duty

included in the value of fixed assets
I (viii) Whether capital goods are acquired
on lease and element of excise duty
I paid to the finance company at the
time first instalment is paid
I (ix) Whether Jigs, fixtures, moulds &
dies are sent out for use injob work
(x) Whether credit taken only in respect
of specified duty
(xi) Whether it is clearly established that
capital goods had, infact, suffered
duty at the time of clearance
(xii)(a) Whether the credit of semi
processed goods sent to job worker
is taken on goods actually received
back in full within 180 days of their
being sent
(b) If not received back, has the
assessee paid an amount equivalent
to the Cenvat credit attributable to
the Capital goods or inputs by debit
to Cenvat Account or PLA

254
 (xii)( c) In case, goods are received back
after 180 days whether credit of duty
I already debited IS taken back
correctly on receipt of goods
(xiii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

255
 13. Export under BondlRebate Date of audit I
L _

Sr. No. What to check YININA* Comments

i) Whether assessee has furnished

undertaking or entered into bond
which is sufficient to cover duty
I liability of goods exported
Whether the bond is signed by the
li (ii)
competent person and is still valid
iii) Whether Register of erstwhile AR4
or AREI maintained and entries of
value etc. made correctly
iv) Whether proof of export has been
submitted within the stipulated
period of six months
(v) Whether all the AR4/AREI are
signed by proper officer and
documents are accompanied by sales
invoices and whether quantity and
value tallied with that of sales
1l1VOICeS
vi) Whether any overdrawal of credit is
due to late submission of proof of
I export
I vii)(a) Whether goods exported under claim
of rebate; and
(b) Whether rebate claimed submitted
within time
viii) The amount of rebate claim
sanctioned tallied with the amount
of duty paid through PLA/Cenvat
(ix)( a) Whether goods are diverted to
Domestic Tariff Area(D.T.A.) under
permission of CCE
(b) Whether proper duty IS paid on
corrected/endorsed documents with
full transaction value
(x) Whether value of export covered
against letter of credit and entire
foreign currency realised
(xi) Any other points(s) specify
Checked by Signature:
I
I Name:
Designation:

256
14. Material sent for job work Date of audit IL _
Sr. No. What to check YIN/NA* Comments
(i) Whether proper register maintained
as prescribed in (Rule 4(5)(a) of
Cenvat Credit Rules, 2002)
(ii) Whether all columns have been
filled up. If not specify reasons
(iii) Whether material sent for jobwork
has been received back In same
quantity including waste i
(iv) Whether any duty has been paid on
material or waste cleared from job
I
worker's premises
(v)(a) Whether processed material has
been received back within 180 days
(b) If not, whether the appropriate
amount of duty has been recovered
(vi) Have all the challans been checked
with the entries in the register
(vii)(a) Whether process carried out at
jobworker's premises amounts to
"manufacture"
(b) If so have you checked the nature of
processing
(c) Whether duty has been paid at job
workers end
(d) Whether perrmssions granted by
CCE in respect of (c) above l
(viii) Whether the process loss has been
shown correctly I

(ix)(a) Whether any moulds/dies sent for

jobwork and Cenvat credit taken
(b) Whether moulds/dies received back
(x) Any other points(s) specify
Checked by Signature:

Name:
Designation: I

257
15. Annual Stock Taking (AST) Date of audit 1 ---'

Sr. No. What to check YININA* Comments

(i) Whether the stock taking was
conducted by the assessee himself in
respect of goods lying in stock
(ii)( a) Whether any discrepancy had been
noticed and was accounted for
correctly
(b) If so, whether in respect of shortage
duty has been paid
© In respect of excess stock, if any,
noticed whether the same has been
entered in production record (RG-l)
(iii) Whether duty on shortages if not
paid by the assessee has been
demanded correctly
(iv) Any other points(s) specify
Checked by Signature:

Name:
Designation:

258
 Show-cause-notices
16.
pending adjudication
Date of audit I
L _

Sr. No. What to check YININA* Comments

(i)(a) Whether list of show cause notices
where demands are confirmed!
dropped/set -a-side for denovo
adjudication, obtained from the
Range Office
(b) Whether their present position cross
checked with assessee's records
(c) Whether details of outstanding
demands have also been cross
checked with confirmed/
unconfirmed Register of demands
maintained at Range Office
(ii) Whether duty with interest/penalty
paid by the assessee correctly
against order in original confirming
the demand
(iii) Whether assessee has gone in appeal
and obtained stay
(iv) Any other points(s) specify
Checked by Signature:

Name:
Designation:

259
17. Scrutiny of old
Date of audit 1 -----"
outstanding objection

Sr. No. What to check YININA* Comments

(i)(a) Whether all the objections pending
in respect of assessee have been
listed from old LARs
(b) Verified from objection book
(c) Shown in the current Report
(ii) Whether the present position is same
as per assessee's records and that of
position taken from the department
(iii) Whether any amount paid by
assessee through PLA/RG23 [Link]
etc. entry No. & date have been
checked
(iv) Whether audit objections are
accepted and SCN's issued. If so
whether same is confirmed/dropped
(Present position may please be
ascertained)
(v) Whether all the relevant information
required by CERA to settle/process
objection have been obtained from
the assessee/Range Office
(vi) Any other points(s) specify
Checked by Signature:

Name:
Designation:

260
18. Range office record Date of audit 1 _

Sr. No. What to check YININA* Comments

(i)(a) Whether a list of records being -
maintained at Range Office,
received
(b) Whether all records meant to be
maintained at Range Offices are
maintained (Prepare a list & tick
out)
(ii) Whether register of registration
granted to all the (a) manufacturers
(b) dealers complete and updated
(now by Division Office)
(iii) Whether any system is devised at
Range Office to bring the new
assessees under the ambit of excise
registration before he himself
applies for the same
(iv)(a) Have you checked the position of
receipt of monthly/quarterly returns
(RT12/ERI)
(b) Whether all the returns have been
received in time
(c) Have the department/Range Office
taken appropriate action where
returns are not received
(d) Have the Range Officer
checked/scrutinised the RT12/ERI
Returns and short levy of duty or
late payments of excise duty noticed
(e) Has the defaulter assessee been
issued proper notice to make
payment of duty not paid by due
dates
(t) If so, whether any penalty has been
levied treating their clearance of
goods as without payment of duty
(v)(a) Has the Range Office maintained
any record of manufacturers availing
exemption on basis of value of
clearance below Rs.l crore
(b) Is there any system to check whether
the assessees have' availed of the
exemption correctly
(vi)(a) Whether demand register (a)
maintained and (b) complete

261
(b) Whether show cause notice are
issued promptly
(c) Whether all show cause notices are
adjudicated promptly (Check the
position of outstanding year wise
demands)
(vii) Which cases have been set-a-
side/dropped by Appellate authority
(vii)(a) Whether department has reviewed
those cases in time and filed the
appeal
(b) If not reviewed, whether any further
judgement has come to your notice
to point out department's failure to
go in appeal
(viii) Whether cases received back for
denovo adjudication have been
adjudicated expeditiously
(ix) In respect of unconfirmed demands,
Whether deptt. has issued periodical
demands from time to time
(x) If any Issue IS pending as per
Board's decision or case is pending
with appellant authority, whether
deptt. has issued periodical SCNs
covering all the periods to protect
revenue.
(xi)(a) Whether material for monthly
Technical Reports (MTR) sent to
Commissionerate office timely
(b) Whether the information sent for
MTR tallied with the actual data
available on records
(xii)(a) Whether trend of revenue collection
III the Range office reviewed/
analysed and reasons of downfall in
revenue identified
(b) Whether the Range office has
devised any system to check
genuineness of the ModvatlCenvat
credit claimed by the asses sees
(c) Whether the cases of defaults in
payment of duty on monthly basis
resulting in incorrect availment of
Cenvat credit, been noticed in audit
(xiii) Any other points(s) specify
Checked by Signature:
Name:
Designation:

262
 &

19. Duty Paid goods received for

further manufacture, for
repair, processing etc., and
Date ofaudit IL- _
their accounts

Sr. No. What to check YININA* Comments

(i) Whether receipt back of duty paid
goods, intimated by the assessee?
(ii) Whether returned goods are
accompanied with proper duty
paymg documents and transport
documents
(iii) Whether assessee has taken credit of
duty shown m the documents
accompanying the returned goods.
(iv) Have you compared entries,
selectively in the relevant Cenvat
records etc., with the duty paying
documents such as Invoices, Bills of
Entry etc.
(v) Whether the goods have been used
for the intended purpose and there is
proper correlation between the
.quantity issued and that actually
used m the finished products,
keeping m View the resultant
wastage and its disposal
(vi)(a) Whether the percentage of receipt of
goods for repair, processing etc.
under rule 16A, 16B or 16C of the
Central Excise Rules, 2002 was on
the higher side
(vi)(b) If so, whether genuineness of
receipts checked I
(vii)(a) Whether the provision of the rule 16
of the Central Excise Rules, 2002 in
respect of returned goods have been
availed of for processes amounting
to "manufacture"
(vii)(b) If so, duty due there on recovered
(viii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

263
20. Scrutiny of commercial records
20.1 Sales ledger Date of audit 1 _

Sr. No. What to check YININA* Comments

(i) Whether invoices and sales ledger
are generated on
(a) Computer, or
(b) Written manually and
(c) Whether cancelled invoice are on
record
(ii) Whether sales figures shown in the
sales ledger are inclusive of Excise
Duty and Sales Tax and all taxes are
actually paid or payable
(iii)( a) Whether considerations forming part
of the assessable value viz. packing
charges, transportation, testing
charges etc. have been exhibited
separately
(b) If not, whether the Assessable value
in RT 12/ER! is reconcilable with
the sales ledger figures
(iv) Whether all types of sales viz.
(i) Sale of manufactured goods
(ii) Sales of semi finished goods
(iii) Sales of Inputs as such
(iv) Sale of capital goods
(v) Sale of Waste and scrap
(vi) Sale of Export goods
Shown separately and reconciled
(v)(a) Whether sale figures shown in RT
I2/ERI tallied with the figures in
sales ledger (If not, may reconcile)
Cb) Whether the sales figures tallied
with the figures shown in Sales Tax
Returns (If not, may reconcile)
(c) Whether the figures of sales shown
in tallied with sales figures shown in
the schedule to the Balance Sheet (If
not, may reconcile)
(vi) Whether excise duty shown in the
Sales ledger tallied with the excise
duty paid/payable shown in the RT
I2/ER! Return (If not, may
reconcile)

264
(vii) Whether goods returned from
Customers for repair, reconditioning
and for any other reasons tallied
with the figures shown in the RT
l2IERI with Excise duty
adjustments
(viii)( a) Whether excisable goods are shown
as first grade or second grade goods
(b) If so, whether there is case where
value of the first grade is suppressed
and shown as second grade (These
can be checked with record of
manufactured goods)
(ix)(a) Whether value of computer
hardwares includes value of all
softwares supplied alongwith the
hardware
(b) Whether value of all samples and
components supplied free of cost as
replacements have suffered duty as
per RT l2/ERI
(c) Whether installation and
comrmssionmg charges recovered
through invoices/debit notes
subjected to duty, wherever
warranted
(x)(a) Whether serial numbers of invoices
issued tallied with the serial
numbers as intimated to the
department. Is there any case of
parallel InVOICeS issued to avoid
duty
(b) Whether the assessee has the
practice of canceling the invoices
quite often
(c) Whether cancelled invoices related
to local sales, If so whether reasons
for cancellation justified and has no
revenue loss
(xi) Whether cost and Excise Duty of
the goods destroyed In fire
recovered from insurance company
and the amount of Excise Duty paid
to the Government account
(xii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

265

--
20.2 Purchase ledger Date of audit 1 _

Sr. No. What to check YININA* Comments

(i)(a) Whether purchases are centralised
(b) If so, there is system for inviting
tender or
(c) Purchases are directly made
(d) Purchases are through Agents
(e) Whether purchase orders are issued
by the owner/authorised person only
(ii)(a) Purchases are through (I) Bank or
(ii) on credit I
(b) If on credit what is the period of
credit and whether delayed
payments are made with interest
(iii) Whether there is Central Receipt
. Wing in the factory for receipt of
, goods purchased
(iv) Whether all goods received in the
factory are weighed before entry
into the factory and shortage/
excesses noted
(v) Whether inwards entry challans are
prepared before entry of goods is
allowed
(vi) Whether purchase value entered in
I the purchase Account are inclusive
of excise duty
(vii)(a) Whether all goods received in the
factory have undergone
Physical/Chemical tests
(b) Whether proper record is maintained
for such checking/tests
(c) Whether goods rejected in test are
returned and their figures tallied
with the figures of goods returned •
(viii) Whether quantity/value of goods
received tallied with Stock Register
and purchase Account
(ix) Any other points(s) specify
Checked by Signature:

Name:
Designation:

266
20.3 Sundry Debtors Ledger Date of audit 1 _

Sr. No. What to check YININA* Comments

(i) Whether goods are sold through (a)
Factory Gate or Depots (b) Stockists
(c) Dealers (d) Distributors (e) C &
F agents etc.
(ii)(a) Whether goods are sold on credit or
through Bank
(b) Whether uniform rate of discount is
allowed to all
(iii)(a) Whether any dealer/stockist
distributor or C & F agent come
with in the ambit of related person
(b) Have you verified/checked account
of the major creditors who are also
the debtors
(c) Whether they are related
(d) If so, whether price charged by such
persons from their customer IS
charged to duty and differential duty
recovered
(iv) Whether goods rejected/returned by
buyers are accounted for in their
Account
(v)(a) Whether debit note/credit notes
issued to the buyers on any account
(b) Has the debit note/credit note any
bearing on the recovery of excise
duty
(c) Has any escalated value of goods
already supplied recovered
subsequently m cash or through
adjustment in account
(vi)(a) Has any dealer/buyer been issued
any free samples of excisable goods
(b) If so, whether appropriate amount of
excise duty due thereon has been
paid
(vii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

267
20.4 Mise. Income Date of audit L _
Sr. No. What to check YININA* Comments
(i) Whether details/bifurcation of
miscellaneous income shown in the
trading account verified
(ii) Whether wastes and scrap sold are
shown as miscellaneous receipts
(iii) Whether wastes and scraps are
subjected to excise duty correctly
(iv) Whether the "Cut ends" of
metal/plastic sheets, slabs, rods etc.
cleared as "wastes" and subjected to
nil duty or duty at lower value
(v) Whether value of any service
provided to the buyer which were
liable to service tax escaped levy
because of receipts shown as
miscellaneous income
II
(vi)(a) Whether value of rejected excisable
goods returned/sold to the
Supplier/others and value recovered
111 cash shown as miscellaneous
income
(vi)(b) If so, has the assessee reversed the
prorata amount of Cenvat credit
(vii) Any other points(s) specify
Checked by Signature:

Name:
Designation:

268
20.5 Balance Sheet Date of audit 1 _

Sr. No. What to check YININA* Comments

(i)(a) Have you procured the latest
Balance Sheet and Auditor's Reports
for the least 3 years
(b) Whether Balance Sheet and
Auditor's Reports have been gone
through
(ii)( a) Have the turnover figures in the
Balance Sheet compared with those
declared in the RT 12/ERI Returns
(b) If yes, whether there IS any
difference In these two sets of
figures
(c) Whether the difference in two sets of
figures has any effect on the duty
liability
(iii)(a) Whether schedule to "Miscellaneous
Income" examined
(b) Whether the assessee has separately
recovered certain charges from the
buyers which may qualify additional
consideration
(c) Whether the details of
"Commissioning Charges"
"Warranty Charges" & "Service
Charges" and interest on deposit etc.
recovered from the buyers checked
in details to see that the tax liability
is fully discharged
(iv)(a) Whether information given in the
Balance Sheet pursuant to Section
217(1)(e) of Companies Act, 1956
regarding consumption of
fuel/power per unit of production
checked
(b) Whether the above information
provided clue on suppression of
production
(v) Has Director's report at the
beginning of the Balance
Sheet! Annual Report provided any
clue to suppression of facts
(vi)(a) Whether details of schedule on
"Loans" and particularly "unsecured
loans" analysed

269
 (b) Whether the interest free loans taken I
from the buyers/d alers has a I
bearing on the I .ice/transaction
value of the goods sold
(vii)(a) Have you correlated the information I
given in the Balance Sheet pursuant
to the provisions of paragraph 3 and
4 of Part II Schedule IV of the
Companies Act i.e. regarding sales,
I opening stock, closing stock,
analysis of raw material consumed
etc. with those of excise records
(b) If so, have you analysed the
difference in figures and worked out
the duty effect
(viii) Have you analysed the schedule on
"Manufacturing and other expenses"
to check if the entire advertisement
marketing, warranty costs having a
bearing on assessable value are duly
reflected in the assessable value
(ix) Have you analysed the schedule to I
the Plant and Machinery and other!
i; capital assets 10 cl~~k_'_. ~----.
(ixua) Whether the excise duty element is
included in the value of assets for
I <wailing of the depreciation -
I I simultaneously availing the
i I ModvatlCenvat
(b) Whether the excise duty clement
I relating to components etc is f

i charged to Profit and Loss account I

simultaneously availing M odva I!
1------1
Cenvat I
--1------------1------ -------
(c) Whether details of Machinery !
cleared/sold are compared with ~
excise records to check that the duty ~.
f- .+-d.:....l~le
thereon is paid . -+___ __ _ _
f-(~xL)
__ -I-A:....::n)'
other 20ints(s) s ecif I
I-----J Check_·t'_d_b_)_'
__ Signature: J .
1-------+----.--- -_- ----~:~ationrl
_-. I
'~y- Ye.~
N- No
NA - Not appticable

270
 CHAPTER-24

AUDIT REPORTING - PROCEDURE

24.1 Reporting Standards

Reporting standards prescribe the framework for reporting the results of audit
concisely, with accuracy, objectivity and clarity and in a constructive manner and for
appropriate, conclusive and preventive follow up.

24.2 Audit findings - Communication of

24.2.1 Issue of preliminary objection memo

Though all records are audited in the factories or ware houses, the Central Excise
department being the auditee organisation, all objections in the form of preliminary
memos (under the signature of Sr. Audit Officer/Audit Officer in-charge of the party)
should be issued to the jurisdictional superintendent of Central Excise and
acknowledgements obtained, reply received with in a day or before close of audit at the
latest. The preliminary memos should bear the running serial numbers and kept in
record.

24.2.2 Drafting of local audit report

All objections which could not be settled on the spot during the course of audit
should be drafted in the local audit inspection report (LAR). The local audit report
should be drafted in three parts.

)P> Part I - Introductory - Should contain details of outstanding objections from

previous reports, schedule of persistent irregularities, records not made available with
reasons, if any, and should contain the latest position in respect of all previous audit
reports pertaining to the jurisdictional Range to the factory covered in audit. All
concerned files of pending reports should be handed over to the CERA party for
verification of present position of each of the outstanding objections.

)P> Part Il A - Should contain all major irregularities, important objections noticed in
current audit and which are likely to find a place in the Audit Report of Comptroller
and Auditor General of India

)p> Part Il B - Should contain objections which are not required to be pursued through
Part Il A of the Local Audit Report or at higher levels and those with money value
less than Rs. Ten lakh in each case. .

)P> Part III - Should incorporate all objections which are minor in nature (Money Value
less than [Link],OOO) and are not included in Part Il A or Part Il B. A copy (in
duplicate) of part III objections should be delivered/issued to the internal audit
branch of the concerned Commissionerate for further follow up at their end.

Draft inspection report should be prepared by Asstt. Audit Officer and reviewed
by the Sr. Audit Officer/Audit Officer in-charge of the party. In case no Asstt. Audit
Officer is available the report shall be drafted by the Sr. Audit Officer/Audit Officer

271
mm self. Before submitting the draft report to local Headquarters, the reported cases
should be discussed with the concerned Asstt. Commissioner of Central Excise or Range
Officer and his agreement/disagreement recorded with suitable rebuttals where ever
required. A title sheet of the draft local audit report should also be filled in, in the format
given in Annexure 24.1 and attached with the report.

24.2.3 Discussion with concerned Assistant Commissioner/ Deputy Commissioner

or the Superintendent of Central Excise

The CERA party may find irregularities involving short levy which are either not
admitted but action has been initiated for recovery of short levy cases; where no replies
are given by the Range offices; or cases where CERA party gets doubt about the claims
made by the assessee and raises the issue subject to verification. In such cases party
should meet the jurisdictional Asstt. CommissionerlDy. Commissioner and have a
detailed discussion for settlement and feed back taken.

The fact of discussion with the [Link]. Commissioner of Central Excise should
be mentioned in the draft audit report.

24.2.4 Issue of inspection report

It should be ensured that all draft inspection reports are received at local
headquarters within 5 days of completion of audit. The report should be vetted by Asstt.
Audit Officer/Audit Officer or Sr. Audit Officer at local headquarters and approved by
the Group Officer. All cases involving revenue effect over Rs.l crore may be submitted
to the Accountant GenerallPr. Director prior to issue to issue of Local Audit Report for
his approval (Headquarter's circular No.38/2000 CX (letter No.782-8101RA-
I1INDT/CEI797-96/[Link]) dated 28 September 2000 refers). The report should be
presented in logical manner and should be cross indexed so that it would be easy to
follow by the department officials.

The vetting of the report should interalia include the following rmnimum
checks: -

a) incorporation of the correct preamble;

b) the arithmetic accuracy of calculations;
c) cross reference to the documents relied upon with page numbers; and
d) similar objection in respect of the unit was not raised in earlier report.
The complete and neatly typed report should be issued to the concerned Range
officer with a copy to Asstt. Commissioner of Central ExciselDy. Commissioner of
Central Excise and to the Deputy/ Asstt. Commissioner of Central Excise (Audit) within
one month from the date of completion of audit. It should be ensured that report is
drafted as per guidelines given in "style guide" issued by the headquarters
(No.113/Audit(AP)16-2003 dated 27 August 2003 refers).

Copies of potential cases with high money value appearing in the report should
also be sent to the Commissioner of Central Excise demi officially, with a copy to
Deputy Commissioner of Central Excise (Audit)/ Asstt. Commissioner of Central Excise
(Audit) for their information.

272
.. In order to keep watch over the receipt and issue of audit inspection report in
time, a control register should be maintained as per format given in Annexure 24.2.

24.2.5 Objection book

The objections taken in concurrent or local audit should be pursued by prompt

reminders till finality. All objections should be entered in an objection book and their
settlement watched. The objection book should be closed every month under the
signature of the Sr. Audit Officer and reviewed by the Group Officer. Model forms of
objection book and adjustment register are given in Annexure 24.3. The objection book
should be prepared Commissionerate-wise.

A statement of objection outstanding upto 31 March and pending

settlement on 30 September. . . .. .. and a statement of objection where even first repl
was not received within six months of issue of objections should be prepared and sent to
the Commissioner of Central Excise demi-officially by zo" October each year for
expeditious settlement of objections. The format of the statement is given in
Annexure 24.4. A copy of the statement should also be sent to headquarters office by
zo" October every year.
24.2.6 Potential Draft Para (PDP) Register

A register of potential draft paragraphs in the format given in the Annexure 24.-
should be maintained in the CERA branch of each [Link]. D.A. Office. Only tho e
cases which are converted into statement of facts or dropped on approval from
Accountant General/Pr. Director of Audit should only be cleared from the PDP register.
This register should be submitted on the 10th of every month to the Group
Officer/[Link]. D.A. for their review.

24.2.7 Statement of facts (SOF)

A statement of facts may be forwarded to the Commissioner of Central Excise for

confirmation of facts/comments within 6 weeks. After obtaining confirmation of the
statement of facts, draft paragraphs should be processed on the basis of statement of fact
and department's' comments. In case where it is noticed that the reply from the
Commissioner has been unduly delayed and the objection is considered by [Link].A. to
be important enough, involving the important legal point or substantial tax effect to merit
mention in the Audit Report, draft paragraphs should be processed without waiting for
such replies. All cases developed into draft paragraphs should be removed from the SOF
register. If on basis of department's reply, the para is not found fit to be developed into a
draft audit para, the case may be removed from the statement of facts register only after
approval from the Accountant GerierallDirector of audit (Central). A register of
statement of fact in the format given in Annexure 24.6 should also be maintained to
keep watch over the processing of draft paragraphs.

24.2.8 Draft Paragraphs

Draft Paragraphs should be prepared in the manner and in the light of instruction
contained in Annexure 24.7 and a register of Draft paragraphs maintained in the format
given in Annexure 24.8.

273
.•
The monetary limit for sending draft audit paragraphs on Central Excise receipts
and refunds to the headquarters office has been raised to Rs.1 0 lakh with effect from the
Audit Report 1998-99. Smaller objections on the same issue may be clubbed to arrive at
this level. Further, draft paragraphs on objections with smaller duty effect involving
principles of law or any interesting feature may also be sent to headquarters.

24.2.9 Monthly/Quarterly meetings with departmental officers

Instructions for holding of the monthly and quarterly meetings were issued by the
Ministry of Finance to all the Collectors (Commissioners) of Central Excise vide
Ministry's letter [Link].240/16/86-CX.7 dated 25 May 1986 (Also refer 0.0.
No.240115/96-CX.7 dated 4 November 1996 from Member (Central Excise), Central
Board of Excise and Customs addressed to all Commissionerates of Central Excise) and
by headquarters office to all the Accountants General/Directors of Audit dealing with
CERA vide circular No.21/87 CE dated 31 July 1987 (Also refer Board's circular
No.38/2000-CX dated 20 September 2000). According to the instructions monthly
meeting on a fixed date between Deputy Commissioner (Audit)/ Asstt. Commissioner
(Audit) and the Senior Dy. Accountant General/Dy. Accountant General to discuss the
outstanding objections, important audit objections involving substantial amount of
revenue and also the disputed points where there was difference of opinion between
Audit and the department, should be convened and minutes of meetings submitted to
Commissioner and the Accountant General/Pr. Director of Audit (Central) for perusal.

Periodic meeting between the Chief Commissioner and the Accoun

GenerallPr.
, Director of Audit (Central) may be institutionalised to discuss the au it
objections, necessitating issue of show cause notice involving over Rs. one crore.

Similarly periodic meetings between Commissioner and Sr. Dy. Accountan

GenerallDy. Accountant General be institutionalised to discuss cases necessitating i e
of show cause notice involving less amount upto Rs. one crore. The important audit
objections noticed in audit during the previous quarters and also the cases where
department's reply to the paras were awaited should also be discussed in periodi
meetings (at least once in a quarter).

24.2.10 Other records to be maintained at CERA (Headquarters)

(i) Calendar of Return (submission date on or before io" of every month).

(ii) Guard file - containing (submission date on or before io" of every month): -
(a) All Circulars on CERA issued by headquarters.
(b) All Notifications, Circulars, instructions, orders issued under section 37B
of the Act by the Board - To be downloaded from CBEC's website.
(c) All case laws issued by the Supreme Court and appearing in the
ELT/ECRs - To be downloaded from CBEC's website - should be
reviewed on regular basis by AAO (Headquarters)
(d) All orders issued by the Accountant General/Pr. Director of Audit or
Group Officer concerning CERA wing
(iii) Register of cases dropped/settled under the delegated power (submission da e
or before io" of every month).

274
 Annexure 24.1
..•
Title sheet of draft Local Audit Report (LAR) 3
Part A
1. Name and address of the factory,
warehouse or other auditee
1.
2. Names ofSr. AO!AO, AAO and
Sr. Auditor! Auditor in the party 2.
3.
4.

3. Dates (duration) of audit. Number

of working days in conduct of
Audit

4. Period covered in audit

5. The period!record selected for test

audit giving reasons for any
shortfalls or deviations in extent of
".
audit

6. Reasons for changes, if any, in

dates or duration of audit from the
approved programme

7. No. and date of Audit memos with

revenue impact more than Rs.10
lakh or those involving serious
procedural or system defects.

9. Certified that documents not produced to Audit have been listed in a para in Part
B of the draft LAR.
10. Certified that all outstanding paragraphs in the previous LARs have been gone
through by me personally and the remarks for dropping those which are not
sustainable have been given against each. Objections which are outstanding have
to be considered for clubbing and conversion into draft paragraphs or discussion
with Commissioner or Deputy Commissioner of Central Excise, by Group
Officer.
Enclosures: -
1. Draft Audit Report with KD file
2. Assessee's profile
3. Check list (Questionnaire) duly filled Signature of Sr. Audit Officer!
up and signed Audit Officer!AAO
4. Working papers (with details) (Incharge of Party No. )
5. Others (specify)

275
PartB

Certified that the office copies of all audit memos (Sr. No. to )
issued to the Range Office have been annexed to the draft LAR. Replies to the
------
Audit memos (Nos. ) received till date have been reviewed
and suitably incorporated in the draft LAR. Replies to audit memos
(Nos. ) have not been received.

Signature of Sr. Audit Officer/

Audit Officer/AAO
(Incbarge of Party No. )

Part C (To be filled up at Local Headquarter)

1. Entries made in Objection Book (Details ----').

2. Entry in the PDP register made as per orders of Group Officer (Details __ ~).

3. Previous LAR paras dropped as per orders of Group Officer and noted in LAR
and objection book (Details ).

4. Outstanding previous LAR paras for discussion with Commissioner of Central

Excise/Dy. Commissioner of Central Excise have been included in agenda for
next discussion after settling all accepted paras in the LAR (Details
------') ..

Sr. Audit Officer/Audit Officer (Headquarters)

Date: -------

Caution: Title sheet is not to go out with LAR to auditee.

276
 (To be issued to department)

PROFORMA

LOCAL AUDIT REPORT

PART - I

l(a)lntroductory details

Name of the Commissioner Central excise

Name of the Division

Name of Range

Name and address of the assessee(s)

Registration Number(s)

CERA Party Number

Names of the Party Members

Period covered in audit

Duration of audit with details of deviation

from the approved programme

Details of goods manufactured with sub-

headings Number

Details of Revenue for three years

Details of Outstanding Demands against the

asses sees

l(b)About previous audit

Period covered in audit; the dates of Audit

and the CERA Party Number conducting
Audit of the Unit

Details of outstanding objections with the SI. Para LAR Objection Revenue Present
Revenue involved and present status No. No. No. in brief involved statu

PART 11

Current Audit

Results of audit- Highlights of objections

277
Revenue involved (Para-wise)

PART II-A

Para-wise details of major objections

involving revenue impact of Rs.l 0 lakh and
above . and those involving serious
procedural or system defects

PART II-B

Para-wise details of objections involving

revenue impact below Rs.l 0 lakh and those
involving procedural or system defects other
than those mentioned in Part II-A

PART III

Para-wise list of objections involving

revenue impact upto Rs. 10,000 and other
minor objections on procedural irregularities
(Paras to be pursued by the Internal Audit
Branch of the Commissionerate for
settlement)

Signature of Sr. Audit Officer/

Audit Officer/ AAO
(Incharge of Party No. )

278
 Annexure 24.2

Register to watch receipt and issue of Local audit Reports

SI. Name Dates of Audit as per Date of Date of submission for/after Date of Date of Details of para in
No. of unit approved programme receipt of vetting to Group Officer approval issue of LAR Part IIA,
and Reference o. to LAR from by Group LAR Part liB, TAr-; (in
programme register Party Officer brief)

Ar. AAO Sr. AO/AO

2 3 4 5 6 7 8

279
 Annexure 24.3

Objection Book (Part-I)

Objection Book for the month of __ Commisionerate of Centreal Excise

SI. Period Reference to Name& Range/ Nature of Amt. Classification No. & date of No. & date of Remar
No. of audit para No. of address Division objection for purpose references confirmation
Local Audit of the in brief of audit issued/replies of demand
Report assessee Report received

2 3 4 5 6 7 8 9 10 II

Notes:

1. The objection book should be maintained Commissionerate-wise (outstanding objection should be

carried over to the current objection book)

2. When the objection is dropped or settled, the fact thereof should be noted in col. I I and cross
reference to serial number in the adjustment register given.

3. The objection book is in three parts.

4. Part-I of the objection book should be Position of objection outstanding for more
closed every month as under: - than six months

Item Amounts No. of item Amounts

I. Opening balance from Opening Balance .

previous month .

2. (Add) objection during the Addition .

month ~ .

3. Total Total .

4. Less: Amount adjusted Clearance .

during the month as per
adjustment register .
(Objection Book Part-I!)

5. Closing balance . Closing balance .

(Certified that all objections (Year wise break up of
from LAR issued during the closing balance)
month have been entered in
the objection book)

280
 Objection Book (Part 11)

Adjustment register for the month of _

Commissionerate of Central Excise ------

SI. Month and year of Letter No. and date of department Amount Amount of Total amount Remarks
No. objection book and accepting objection OR date of of objection adjusted
objection item No. order of AO/Sr. DAG/AG/HQ for objection settled (Col.4 + 5)
dropping/settlement of objection dropped

2 3 4 5 6 7

Monthly Total (A)

Year wise Break up of (Adjustments)

1.

2.

3.

4.

Total:

281
 Objection Book (Part Ill)

Year wise abstract of objection outstanding and adjusted which relate to

_______ Commissioner of Central Excise for the year _

Objections Amount of objections Adjusted Adjusted Adjusted Adjusted Adjusted Adjusted in

relating to outstanding at the in April in May in June in July in August September
beginning of the year

Balance of

(and previous years)

Balance of

Balance of

Balance of

April 20 .... (Year)

May20 (Year)

June 20 ..... (Year)

July 20. ..(Year)

August 20 .. (Year)

Objections Amount of objections Adjusted Adjusted Adjusted Adjusted Adjusted Adjusted Total
relating to outstanding at the in in in in in in Adjusted
beginning of the year October November December January February March

September 20 .... (Year)

October 20 (Year)

November 20 .... (Year)

December 20 .... (Year)

January 20 (Year)

February 20 ..... (Year)

March 20 (Year)

Total

282
 Annexure 24.4

Part A

Statement of objections issued upto 31 si March and outstanding as on 30th

September in respect of Commissionerate of .

(Amount in lakh o[ rupees)

SI. Name of Para [Link] Objection Classification Duty effect Accepted/Accepted but Remarks
No. Division No. & Date of in brief (Rs.) demand not raised/not
issue, of L.A.R. accepted/not replied

2 3 4 5 6 7 8

Total

Note: 1. This statement is due in CAG's office by zo" October every year.

2. The words to be used in Col.(5) should be the appropriate one from the following
classification generally adopted in Audit Report.

Non Levy (NL) Exemption to Small Scale Internal Audit (lA)

Manufacturers (CR)

Undervaluation (UV) Irregular refunds of Rebates (Ref) Demands for duty not raised (ON)

Misclassification (MC) Short levy of Cess (Cess) Procedural irregularities (Proc)

Incorrect grant of Incorrect grant of utilisation of Other Topics of Interest (OT!)

Exemption (EX) credit (Cr)

Note 3. In Column (7) abbreviations having the following meaning may be used

AD Accepted

ADN Accepted but demand not raised

NA Not accepted

NR Status not known

283
 Part B

Statement of objections in respect of which even first replies have not been received
within six months of issue of Local Audit Reports (i.e. reports issued upto
31 st March ) in respect of Commissionerate of Central Excise .

(Amount in fakir of rupees)

SI. Name of Para No. and No. and date of Objection in brief Duty effect (Rs.) Classification
No. Divisions Local Audit Report

2 3 4 5 6

Note: 1. Commissionerate wise separate statements should be sent

2. This statement is due in CAG's office by zo" October every year.

3. This statement is respect of which only interim replies have been received (but not a
single substantive reply has been received) may be treated as objections where even first
replies have not been received

4. Nil report have to be given in respect of Commissioner ate, if there be nothing to report.

5. The words to be used in Col. (4) should be the appropriate one from the following
classification generally adopted in Audit Report.

Non-levy (NL) Short levy of Cess (Cess)

Undervaluation (UV) Demands for duty not raised (ON)

Misclassification (MC) Procedural irregularities (Proe)

Incorrect grant of Exemption (Ex) Internal A~t (lA)

Incorrect grant or utilisation of credit (Cr) Other Topics of Interest (PT!)

Exemption to Small Scale manufacturers (SS Ex) Irregular refunds or Rebates (Ref.)

284
 Annexure 24.5

Potential Draft Paragrapbs Register

SI. Reference to Name of Range! Brief nature Amount Reference to SI. No. of D.P. [Link] Remarks
o, LARlpara No. assessee Division!CCE of objection statement of facts Register of audit Report

2 3 4 5 6 7 8 9

285
 Annexure 24.6

Statement of facts Register

SI. Reference Reference Name of Brief Amounts No. & date of Reference to D.P. No.! Remarks
o. to LARI to P.D.P. assessee nature of letter forwarding replies Year of
para No. Register objection statement of facts received report

2 3 4 5 6 7 8 9 10

286
 Annexure 24.7

Instructions for preparation of draft paras

1. The draft paras proposed for incorporation in Audit Report on Revenue Receipts
should be prepared in the following manner and in accordance with the
instructions contained in Style Guide issued by headquarter (No.113/Audit(AP)-
16-2003 dated 23 August 2003).

2. The para should be neatly typed with sufficient half margin and sent to
Headquarters furnishing all relevant particulars in the "Key" thereto. The "Key"
should be prepared in Proforma 'A" & 'B" as given below: -

Key Proforma 'A' (In quadruplicate)

1. Name ofthe assessee Unit

2. Commissionerate

3. (a) Division

(b) Range

4. References:

(a) Audit memo issued and reply received _____________ (Attach Copy)
vide No. and date

(b) L.A.R. issued vide No. and date _____________ (Attach Copy)

(c) Department's reply to L.A.R. received (Attach Copy)

vide No. and date

(d) S.F. issued vide No. and date (Attach Copy)

(e) Department's reply to S.F. received (Attach Copy)

vide No. and date

Key-Proforma 'B' (One copy)

(a) Date of audit objection and issue of audit

report

(b) Name ofthe assessee

(c) Reference to demand if any) raised

(d) Whether the point was initially raised by audit

or by departmental authorities

(e) Whether Internal audit party had reviewed the

particular assessment

287
(t) Whether the audit objection is
accepted/licensee had gone in appeal

(g) Reference to previous correspondence with

C & AG on the subject, if any

3. At top of the draft paragraph a serial number may be given as "Local draft
paragraph No. proposed for Audit Report for the year _
on Central Excise Receipts/Service Tax" (whichever applicable) Every draft
paragraph should be accompanied by (i) Brief, (ii) copy of preliminary objection,
(iii) copy of para from LAR, (iv) copy of statement of facts, (v) Calculation sheet
for duty short levied reported, (vi) copy of department's reply, (vii) copies of
rebuttals issued, and (viii) copies of relevant circulars instructions, Trade
notices/Tariff advice decisions of various courts referred to in the draft paragraph.
All these documents should be kept in separate index folder placed in the draft
para file sent to headquarters.

4. Each file cover should be given serial number of Local Draft Paragraph
No. and Review No. separately.

5. All draft paras should be captioned only under the following heading:

(i) Non-levy of duty;

(ii) Short levy of duty due to misclassification;

(iii) Short levy of duty due to irregular grant of exemption

(iv) Short levy of duty due to undervaluation;

(v) Irregular grant of exemptions to small scale manufacturers; \

(vi) Irregular availment of Modvat credit

(vii) Irregular availment of proforma credit and other credits;

(viii) Non-levy short levy of cess;

(ix) Other irregularities.

6. It should be ensured that all the individual paragraphs relating to topics of

reviews are included in the Review and not sent separately as individual draft
paragraphs. Review para should be sent separately in a floppy using software
"MS word" and all annexures should be in Excel format.

7. Care should be bestowed so that the paras are brief and clear. Identical
paragraphs as far as possible should be clubbed together before being sent to this
office.

8. Cases in which draft paras are prepared either at the instance of the office of the
Comptroller and Auditor General of India or after obtaining a concurrence from
that office, references to such correspondence should invariably be given.

288
9. Where the draft paras purport to comment on the Tariff Values or executive
instructions of the Board and where the cases had been concurred in by the
Comptroller and Auditor General's Office formal objection should be issued to
the Commissionerate, but these need not be pursued at the Commissioner level.
This is with a view to enable him to acquaint himself with the audit objections.

10. The monetary limit may be Rs.1 0 lakh/5 lakh and above for any individual para
on Central Excise and Service Tax respectively. But there is no rigidity in regard
to this limit. For example cases may be of general nature, involving other
Commissionerate and in such cases, the overall effect may be substantial. In such
cases, paras should be proposed even if the amounts are lesser than the limit laid
down, and involve a point of law.

11. There is a need to lay full stress to ensure that the financial implications covered
by the sustainable draft paragraph exceeds five per cent/three per cent of the
Annual Central Excise and Service Tax Revenue than to achieve only numerical
targets.

12. Amounts should be rounded off to the nearest rupee in all cases. Mentioning of
fraction of a rupee should be avoided, except where rates have to be referred. A
duly checked and signed copy of calculation sheet of duty short levied arrived at
should be attached with the para.

13. All paras should be got approved by the Accountant GenerallPr. Director and sent
to the office of the Comptroller and Auditor General, as soon as they are read ..
As a minimum period of six weeks has to be given to the Ministry after issue of
draft paragraphs and finalisation of audit Report is a time bound programme, the
following dates for sending the paragraphs to the headquarters may be adhered
to: -
~ 10 per cent of draft paragraphs by February
~ 40 per cent of draft paragraphs by March
~ 70 per cent of draft paragraphs by April
~ 100 per cent of draft paragraphs by May
(Dates are subject to change as instructed by headquarter's office).
14. Draft paragraphs should be drafted with utmost care to ensure that the facts
reported in the paragraph are fully established. If the department was already
aware of the audit point, and had taken action, such facts should be clearl
brought out.

15. The brief to the draft paragraph should contain all details/updated events relating
to the case.

16. Annual reports (on the prescribed proforma) should be sent to Comptroller and
auditor General on 31 st August every year indicating therein the details of the
paragraphs sent. Copies of all draft paragraphs already sent may also be sent in a
floppy using software MS-word.

17. Draft paras on non-production of recordslinformation constrairung the

performance of audit should be attempted (Circular No.13/98 CX-Letter
No.160/RA-I/INDT/CE/458-98/Tech. dated 27 February 1998).

289
 Annexure 24.8

Register of Draft Paragraphs

SI. Reference to P.D.P. Name of Brief nature of Amount No. & date forwarding Reference to paras Remarks
No. register assessee objection the D.P. to CAG's office in Audit Report

2 3 4 5 6 7 8

290
 CHAPTER-25

MISCELLANEOUS

25.1 Scrutiny of Court's orders appearing in ELTslECRs

Case laws featured in the EL Ts/ECRs should be scrutinised by field offices on

regular basis and their comments, wherever warranted communicated to headquarter
office.

25.2 Scrutiny of circulars/notifications etc.

The Pr. Director of Audit (INDT) in the office of the Comptroller and Auditor
General of India coordinates the activities of Indirect Taxes wing. In pursuance of this
function he scrutinises all orders, notifications, circulars and clarifications issued by the
Central Board of Excise and Customs or the Government of India. Objections if any.
which are proposed to be pursued are circulated among all the offices for information
and collection of further material. All orders and delegations issued by the Chief
Commissioners of Central Excise and other lower authorities may be examined by the
respective Accountant General!Pr. Directors concerned. Points of doubt may, howe er.
be got cleared by reference to the Principal Director of Audit (INDT).

25.3 Cases of doubts

All cases of doubts in the case of assessments, procedure or application of

notification or order, interpretations of the orders should be referred to the Principal
Director of Audit (INDT) for advice after the case has been seen by the Accountant
General/Principal Director of Audit (Central).

25.4 Access to the CAG's web site and CBEC's web site

All circulars notifications clarifications and orders under Section 37B of the Act
etc. issued by the Central Board of Excise and Customs and important case laws are
available at CBEC's web site [Link]

Similarly important orders issued by the headquarters are available at CAG's web
site [Link] inlcagreceiptaudit.

All field offices may, therefore, visit to the web sites for access and downloading
ofthe orders for scrutiny.

25.5 Letters addressed to headquarters

All letters addressed to Headquarters should be signed by the officer not below
the rank of Director/Dy. Director, Sr. Dy. Accountant GenerallDy. Accountant General
indicating the fact that, the letter is issued after approval of the Director GenerallPr.
Accountant General! Accountant General or Principal Director of Audit (Central)
concerned.

291
25.6 Pursuance and settlement of objections

Detailed instructions for dropping/settlement of objections have been circulated

vide Circular No.6/841N0.1 07/Rec.A.I.I40-83/IDT CE, VI dated 7 February 1984 as
amended vide Circular No. 17/200 1 CE issued vide letter No. 785IRA/INDT/CE/6-
95/Misc. dated 6 August 2001 (Annexure 25.1).

25.7 Returns to be submitted to headquarters

Returns/statements to be furnished to the Principal Director of Audit (Indirect

Taxes) office of the Comptroller and Auditor General of India and their due dates for
submission (Annexure 25.2).

292
 Annexure 25.1

Copy of Circular No.6/84 issued vide No.1071REC.A.I/40-83IIDT/CE VI dated

07.02.1984 on Settlement and dropping of objections in CERA and CRA

Kindly refer to the following letter issued from this office on the subject
mentioned above which contain the current directions and guidelines on the above
subject: - .
(i), Circular No.1 0/82 dated 06.05.82
(ii) Circular No.20/82 dated 16.06.82
(iii) Circular No.14/83 dated 28.04.83
Even though almost all the question relating to settlement of old objections have
been answered in the above letters giving full powers to Accountants General and
Directors of audit to settle and drop objections, references are still being received in this
office quoting older instructions and letters from this office which are out of date and
wanting enhancement of powers to settle or drop objections. The substance of the above
three circulars which has relevance for future are reproduced below in this letter for
ready and future reference.

2. Objections in draft paragraphs which are sent to headquarters office

(i) Objections which are not sent to Ministry and are included in Total nder
Assessment (TU A): -

Where draft paragraphs received in headquarters office are not sent to the
Ministry, they are mostly accepted objections included in Total Under Assessment figure
mentioned in the Audit Report & the concerned Accountant General/Director of audit is
informed promptly of their inclusion in Total Under Assessment. On accepted
objections whether or not sent to Ministry, Accountant GenerallDirector of audit has full
powers to settle the accepted objections directly with Collector/Assistant Collector. 0
communication need be awaited from headquarters office in respect of accepted
objections which are included in TUA by headquarters office. If an accepted objection
which is not sent to Ministry, subsequently becomes non-accepted, it should be treated as
non accepted objection, not sent to Ministry.

(ii) Objections which are not sent to Ministry and which are also not included in
Total under assessment: -

The objections which in headquarters office are not held to be correct and which
are asked to be dropped will come under this category. In this category, there will
seldom be any accepted objection. But where a draft paragraph is not sent to the
Ministry by headquarters office because it is deferred (for reason of its late receipt in
Headquarters) or for any special reason, Accountant General/Director of audit will be
informed of the reasons in respect of each such paragraph individually. In respect of
such objections as have not been accepted, nor asked to be dropped by headquarters
office if nothing is heard from the headquarters office, similar objections may continue
to be raised and similar draft audit paragraphs may also be sent for future audit reports.

293
(iii) Objections which are sent to Ministry and are accepted by the Ministry

The fact of acceptance of the objection in the draft paragraph by the Ministry will
be intimated to the concerned Accountant General/Director of audit as soon as the
acceptance is received. (The earlier acceptance by Collector, Central Excise is not final
in case of draft paragraphs sent to the Ministry which it may not accept, but unless
Ministry rejects the accepted objection, the presumption is that it is an accepted objection
for all purposes). Such objections may also be pursued by the field office for settlement
as any other accepted objection on which draft paragraphs has not been prepared or draft
paragraph has not been sent to Ministry. Settlement will in no way reduce the
importance of the draft paragraph featured in the Audit Report. In fact, the rectification
of mistake and the collection of demand in such cases will only strengthen Audit's
presentation, when PAC looks into the para. There is no bar in even reporting an already
settled objection in the Audit Report. The PAC will be interested in settled objections
involving large tax affect or those highlighting procedural or system defects. The
closing in headquarters-office of the para in the audit Report is distinct and separate from
the settlement of objection in field office. The action in headquarters office is linked to
PAC's report and not to the settlement of audit objection.

(iv) Objections which are sent to Ministry but are not accepted by the Ministry: -

In such cases necessary information or clarification and comments may be called

for by letter or telex by headquarters office from the AG/DA with a view to taking a
decision on featuring the draft paragraphs in the Audit Report. Replies in such cases
should be sent within the time allowed by headquarters office. If replies are not
received, the Ministry's non-acceptance may have to prevail, unless it is patently
rebuttable in which case the draft para may feature in the report. If ultimately the para is
not included in the Audit Report for any reason AG/DA will be requested b
headquarters office to take further action for its pursuance or for dropping. In any case.
specific direction will be given by headquarters office. Where the non-accepted
objection has to be pursued (and the para has not featured in audit report) and nothing is
heard from headquarters office similar objections may continue to be raised and similar
draft paragraph also sent for future audit reports.

3. Stage at which objection should be termed settled: -

(i) Objection should be termed settled after acceptance of objection by department

and its rectification. Rectification means confirmation of demand after adjudication.
Settlement need not be delayed pending collection or pending decision on appeal
preferred by assessee against confirmed demand.

(ii) It is relevant to stress the fact that audit objections are directed [Link] the
executive and not against judicial or quasi-judicial authorities who act judicially after
hearing the assessee and the department. Audit objection is directed only against acts of
omission or commission by Executive. There should be no breath of criticism, even
implied, against any judicial authority in the audit objection. A copy of Law Ministry's
advice in the case of Sialkot Industrial Corporation vs. Union of India is relevant in this
connection (see Annexure). It brings out how an appeal can be made to arise, to help to
get a legal point resolved by Supreme court even if decision of High court is considered
binding in a State. Audit should only question wisdom of department in not filing

294
appeals against appellates decision. The judicial independence of appellate authorities
must be respected.

(iii) Where an objection stands accepted and demand has been raised its settlement
need not be held up because appeals have been filed. The objection having been
accepted by department it should be treated as settled for all purposes. The
supplementary question as to whether the acceptance of the appellate decision by the
executive was in order or not may be examined as a fresh issue in subsequent audit. For
this purpose, a suitable procedure may be devised in your office to ensure that a proper
record of appeals on demands raised consequent to acceptance of audit objections are
kept. Suitable instructions should be issued to the field audit parties for looking into
such cases during local audit. The AO (Headquarters) in field office should see to it that
the audit parties get list of such settled objections. In case it is found that the decision
not to resist the appellate orders was contrary to the departmental instructions or decided
case-laws on the subject accepted by department or the view of Audit accepted by
department, fresh objection to that effect may be raised. But what the audit party finds
will be the basis for a fresh objection. Draft paras on such fresh cases may also be
floated if the amount of underassessment warrants it.

4. Non-accepted objections and seeking of advice

Where a particular view has been advanced by AG/DA in an objection and a

reference has been made to this office for confirmation of the view (as an advice case),
then, if no reply has been received from headquarters office, draft paragraph must be sent
before the immediately following last date for sending draft paragraphs to headquarters
office. Where the amount of underassessment warrants it, draft paragraph must be sent
especially, wherever an objection has already been taken and communicated to
department. It is no help to the department if Audit entertains doubts after
communicating an objection to the department. If objection is not dropped by Audit and
only a reference is sent to headquarters office for advice, it is no help to the department
nor to the cause of the Audit Report. Draft paragraph must be sent to headquarters office
whether or not advice reference has been made to headquarters office.

5. Old instructions which are out of date: -

The following letters issued from this office on the above subject are out of date
and may not be quoted as authority for any future action or non-action on the subject of
settlement or dropping of audit objections.
(i) No.240-Rec.A.I/474-79/CE-VI dated 07.02.1980
(ii) [Link]/Rec.A.I/474-79(VI) dated 09.05.1980
(iii) No.2028/Rec.A.I/223-77/CE-VI dated 11.09.1980
(iv) No.2836/Rec.A.I/233-33/IDT/CE- VI dated 24.12.1980
(v) No.154/Rec.A.I/Cus.l111-82 dated 14.04.1983
6. Old non-accepted objections

Where a non-accepted objection related to an old audit cycle (presently draft

paragraphs relating to 1979-80 and earlier audit cycles are not selected for sending to the
Ministry save in exceptional cases), the objection needs to be pursued through other
identical objection taken in recent audit cycles. The old objection may be closed as "not
to be pursued" and cross referenced with a large value objection in recent audit cycles.

295
Reference to past objections may be given in brief to draft paragraph on the recent audit
objection. The department could also be informed that while the old objection is not to
be treated as settled, it is not being pursued separately. There is a difference in view
point between department and Audit. The former is concerned with recovery of the
amount involved in audit objection. But Audit is concerned with the principle
underlying the audit objection. The department may well insist that the objection be
dropped to enable department to close the show cause notice issued by it. Audit should
not settle the objection but need not pursue it either. Audit may even close the objection
unsettled or without dropping it. It is for department to take responsibility for its
contradictory actions in issuing show cause notice as well as not accepting the objection.
So long as the principle underlying the audit objection is not accepted by the department,
it is not possible for Audit to drop or settle the objection. But Audit (with its limited
staff resources) need not pursue the very old objections. Only the principle may be
pursued through objections in recent audit cycles. Such principles must get reflected in
draft paragraphs on it sent year after year till the principle is accepted by department.

7. Power to settle or drop objection

(i) Subject to above paragraphs, AGs/DAs have full powers to raise, pursue, settle
and drop objections without any monetary or other limit.

(ii) Non exercise of delegated powers leads to avoidable correspondence with

headquarters office. The large number of old pending objections is a symptom of
unproductive utilisation of available man power resources for audit. The number of draft
paragraphs sent to headquarters office (and the percentage which get featured in the
printed audit report) is the indicator of productive utilisation of available man power
resources for audit. Unless more old objections are cleared than new objections are
taken in any year, the percentage of audit staff engaged on such audit as will give rise to
draft paragraphs will keep decreasing year by year. Instead more and more audit staff
would be demanded for managing increasing number of unproductive old objections.

(iii) Audit Reports for 1980-81 and earlier years have been already closed after final
deliberations by the PAC whose reports have also issued. If on any draft paragraph
relating to these Audit Reports, you have not taken all action under the powers delegated
to you, you may do so immediately. If you are awaiting any decisions from this office in
any case, kindly review whether it is necessary to wait for a decision and if so the matter
may be referred derni-officially to DRA-II.

(a) It is a fact that upto the time of issue of Local Audit Report full powers exist with
1D/Sr. DAG or DD/DAG to exclude or include any objection in the LAR. Thereafter the
power to settle accepted objections can be exercised at any level (even below that of
group officer) as may be decided by AG/DA or Group Officer as a purely internal
arrangement. Full powers exist with AG/DA as also group officer in this regard.
Settlement of cases involving underassessment of more than Rs. one lakh which for
some reason have not featured in the printed audit report must however be shown to
AG/DA for information at any time, before or after settlement.

(b) As regards dropping of objections (only non accepted objections can be dropped.
Accepted objections can only be settled; they cannot be dropped) as a one time measure,
and subject to approval of AG/DA objections taken in audit cycle of 1979-80 and earlier
cycles may be dropped by group officer irrespective of value of underassessment, if in

296
his view the objection cannot be sustained nor pressed by preparing a draft paragraph.
But objections of value more than Rs. one lakh (Rs.25,000 in case of Customs) taken in
1980-81 or late audit cycles should be dropped only with the approval of AG/DA.
Group officers may with the approval of AG/DA exercise powers to drop objection up to
Rs. one lakh (Rs.25,000 in case of Customs). The existing power of AOs to drop
objection may continue within the limit of Rs.l ,000. Group Officers may delegate their
powers to drop objection to specified AOs in Headquarters (by name) upto a limit of
Rs.25,000 (Rs.10,000 in case of customs) with the approval of AG/DA to such a
delegation (by name). The names of such AOs may be intimated to Headquarters office
for information indicating period of such delegation (Modified instructions on this
point vide headquarters circular No.17/2001 CX issued vide 0.785/RAII DT/CE-
16-95/Misc. dated 06.08.2002 may be referred to).

(v) In the quarterly statement of objections of value Rs. one lakh and above
(Rs.1 0,000 till now in case of Customs) there is no need to indicate, in future, any settled
objections. There is also no need to indicate dropped objections of value more than Rs.
one lakh (Rs.25,000 in case of Customs) relating to 1979-80 audit cycle and earlier audit
cycles. Only dropped objection of 1980-81 audit cycle onwards where underassessment
exceeds Rs. one lakh (Rs.25,000 henceforth in case of Customs) need be indicated in the
quarterly statement.

8. Six monthly statement of outstanding objections sent to Ministry: -

Presently six monthly statements of outstanding objections are received in

headquarters office every half year for sending to the Ministry. The objections in respect
of which, even first replies are not received are highlighted. Therein you may ensure that
no accepted and settled objection features, in future. Also in respect of all non-accepted
objections taken in last completed audit cycles and earlier audit cycles which are
included in the six monthly lists, the principle of the objection may be indicated precisely
in such clear words as can be incorporated in headquarters office in a consolidated draft
paragraph which will be prepared in headquarters office after sending the lists to the
ministry. Where the principle of the objection is not clearly and precisely worded it i
liable to be deleted in headquarters office and AG/DA would be requested to indicate
why a vague objection is still outstanding.
Hindi version of this letter will follow.
Receipt of this letter may please be acknowledged.
Yours faithfully,
SD/-
(N. Sivasubramanian)
Director of Receipt Audit-II
0.1 081Rec/ A.I140-83/IDT/CE VI
Copy forwarded to information to : -
(1) PA to JD (C & CX)
(2) AO) (CX)
(3) A02 (CX)
(4) AO (Cus)
(5) All SOs in Receipt Audit-I Section
(6) Sr. PA to DRA 11
(7) SOs Customs Three copies

297
 Annexure 25.1 (Part)

Ministry of Law, Justice & Company Affairs

(Department of Legal Affairs)
Advice (F) Section.
The Delhi High Court has held in the Sialkot Industrisal Corporation Vs. Union
of India (Civil writ No.647 of 1968) the expression lost or destroyed occurring in Section
23 of the Customs Act is used in the generic and comprehensive sense and includes
within it the case of loss to the party by pilferage. The Court did not accept the
contention of the Department that pilferage is specifically dealt with in Section 13 of the
Customs Act and such will not be covered by section 23.

The judgement of the Delhi High Court is dated 2ih September, 1977. It appears
that no appeal was preferred against the said judgement and as such, it has become final
and binding on the department. The law declared by the Delhi High Court is binding
within the jurisdiction of the Delhi High Court. If in similar cases arising within the
jurisdiction of the Delhi High Court the Department follows the Board's instructions to
the contrary issued in 1968, the aggrieved party may move the Delhi High Court and it is
likely that the High Court may follow its earlier decision and grant relief to the party. In
such an event, the department may, however, take up the matter in appeal to the Supreme
Court for an authoritative opinion.

As regards the claims of parties who are outside the territorial jurisdiction of the
Delhi High Court, there appears to be no objection to following the Board's instructions.

SD/-
P.K. Kartha
Joint Secretary and Legal Advisor
03.12.1981

298
 Annexure 25.1 (Part)

Copy of Circular No.17/200l/CX issued vide No.78S/RA-I/INDT/CE/6-95/Misc.

dated 6 August 2001 regarding settlement and dropping of objection in CERA

Kindly refer to Headquarters circular No.6/84 issued under No.l 07/Rec.A.l/40-

83/IDT/CE IV dated 07.02.84 on the subject mentioned above (copy enclosed).

Consequent upon raising of monetary limit of draft paras to [Link] lakh, the
question of enhancement of powers delegated to drop objection relating to Central
Excise cases has been under consideration by Headquarters. Taking into consideration
the suggestions given by the field office in this regard, it has now been decided to
partially modify the instructions contained in para 7 of the circular referred to above to
the extent given below: -

Para 7(iv)(b) (Dropping of objection not featured in Audit Report)

The objections of value more than Rs.5 lakh shall be dropped only with the
approval of Accountant General/Pr. Director of Audit. Group Officers may, with the
approval of Accountants GenerallPr. Directors of Audit, exercise powers to drop
objections upto Rs.5 lakh. The powers of Sr. Audit Officers/Audit Officers to drop
objection has been enhanced upto a limit of Rs.I0,000/-. The Group Officer may.
however delegate their powers to drop objections to a specified Sr. Audit Officer/Audit
Officer in headquarters (by name) upto a limit of Rs. one lakh with the approval of
Accountant General/Pr. Director of Audit to such a delegation. Henceforth, a register of
dropped objections as per the enclosed proforma will be maintained by the field office.
This register will be put up to the Group Officer every month. The Group Officer shall
at random test check at least 5 per cent of the cases dropped by Sr. Audit Officer/Audit
Officer. The register will also be shown to Accountant General/Pr. Director of Audit
after every quarter. A note to this effect may be kept in calendar of return.

Yours faithfully.
SD/-
(Devika)
Director (CX)

299
 Annexure 25.1 (Part)

Register of dropped objections (Commissionerate-wise)

Dropped by Dropped by
Sr. AO/AO Grou Officer
7 8

300
 Annexure 25.2

Details of returns/statements to be furnished to the headquarters

SI. Name of return Form Due date or Authority
No. reaching the
headquarters
A. Returns
(i)(a) Monthly report Return-I NA
(i)(b) Quarterly performance Return-H 10lhApril CAG's circular NO.22/200 I-CE
report 10lhJuly dated 27 .09 .200 l/No.970-Rec.
ro" October A.I./S43-200 IIIDTICE dated
10 January 27.09.2001.
(ii) Information about the Return-Ill 31 st January CAG's Circular No. I7/79
supervisory visits by SL (D.O. No.46S-Rec.(A)IV/33-
DAG/DAG/Director/Dy. 78) dated 07.07.1978 and D.O.
DiL in-charge of Receipt No.S70 Rec. AIV/33-78 of
Audit Wing (Indirect Taxes) August 1979
yearly
B. Statements
(iii) Statement of Draft Statement-I 31 st August CAG's Circular No.36/90-CE
paragraphs proposed for issued under letter NO.1434-
Audit Report [Link]/784-90/IDT/CE dated
21.09.1990
(iv) Statement of Draft para Statement-lA 31 st August CAG's Circular NO.36/90-CE
cases proposed for inclusion issued under letter NO.1434-
in the review [Link]/784-90/IDT/CE dated
21.09.1990
(v) Statement showing category Statement-I/ 31 st August CAG's Circular No.36/90-CE
wise cases of under issued under letter NO.1434-
assessment etc. accepted by [Link]/784-90/IDT/CE dated
the department (involving 21.09.1990
duty effect below Rs. 10
lakhs not considered suitable
for draft paragraphs)
(vi) Statement showing category Statement-HA 31st August CAG's Circular NO.36/90-CE
wise cases of under issued under letter No. 1434-
assessment etc. accepted by [Link]/784-90/IDT/CE dated
the department (involving 21.09.1990
duty effect below Rs.S lakhs
not considered suitable for
draft review)
(vii) Digest of important and Statement-Ill to" January CAG's circular No.36/90 CE
interesting cases (Half to" July issued under letter NO.1434-
yearly) [Link]/784-90/IDTICE dated
21.09.1990
(viii) Statement of outstanding Statement-IV s" October D.O. No.69-RA-INDT/SOI-
objections issued upto 3 l" 2002/CE/DP dated 31 January
March (year of report) and 2002
outstanding on so"
September (current year)
(ix) Annual statement of Statement- V s" October CAG's Circular No. 17/84-CE
outstanding objections in dated 04.04.1984
respect of which even first
replies have not been
received within 6 months of
issue of Local Audit Report

301
 Annexure 25.2(i)

Return-II

Quarterly Performance Report (Central Excise) for the quarter ending _

1. No. of audit parties

2. Local Audit Category 'A' Category'B' Total

(i) No. of units/offices/organisations due for audit during

the year as per audit plan

(ii) No. of units programmed for audit in the quarter

(iii) No. of units actually audited

(a) during the quarter

(b) cumulative no. of units audited (for the audit

year) upto the end of the quarter

3.-Position of potential draft paragraphs: No. Amount

(i) No. and revenue effect of POPs registered upto the end
of proceeding quarter

(ii) Additions during the quarter

(iii) Clearance during the quarter

(a) Converted into draft paragraphs

(b) Settled/dropeed

(iv) Balance upto the end of quarter

(v) No. of POP in respect of which no statement offacts

issued

4. Position of Statement of Facts

(i) o. ofSOF issued

(ii) o. of SOF closed

iii) Balance at the end of each quarter

5. Despatch of draft paras to Headquarters Office No. Amount

together with revenue effect)

(i) o. of Draft paras sent upto the end of proceeding

quarter

(ii) o. of draft Paras sent upto the end of the quarter

iii) Total (i + ii)

302
(iv) Short fall as per targets, if any

6. Dates of seminar/training courses held giving

number of officers of each grade who
participated/trained

7. Position of Inter Departmental meetings

(i) No. of meetings with Asstt. Cmmissioner/Dy.

Commissioner (Audit)

(ii) No. of meetings with Commissioner (Central Excise)

(iii) Details of objection settled No. of items Amount

8. Outstanding objection

(i) Clearance during the quarter

(ii) Year wise break-up, closing balance for current year Year No. of items Duty involved
and all other previous years together (Rs. in lakh)

Signature of Group Officer

303
 Annexure 25.2(ii)
Due date 31 st January
Return III

Information about the supervisory visits by Group Officer

in-charge of CER wing (yearly)

Name of the Date of charge Number of Number of Shortfall if Remarks

Group Officer taken over supervisory visits supervisory any (including details
due during the year visits of contribution
Jan.-Dec.* conducted made

* Note: A date wise list of units visited may be attached.

304
 Annexure 2 - .2(iii
Due date 31 1 uzu t
Statement I

Statement of Draft Paras proposed for Audit Report (yearly)

DAP 0., _

----
o. Name of Nameo f the I Nature of Amount Deptt's Reply Recover Rem rl.
the CCE asse se e objection involved (A/NA/NR)

~ --- - : ----'

Annexure 25.2(h
Due da te 31 ,I ugu.
Statement lA

Statement of Dri ft paragraphs proposed for inclusion in Review

~
o. Name of Name of the Nature of Amount Deptt's Reply Recover) Remark
the CCE assessee ~ection involved (A/NA/NR)
-

305
 Annexure 25.2( & vi)
Due date 31 t Augu t
Statement-IlIlIA

Statement of admitted objections not converted into Draft Paragraph/Review

SI. Subject of Name of Duty admitted Duty recovered Remarks,

No. the objection Commissioneratee if any

No. of Amount No. of Amount

cases (Rs. in lakh) cases (Rs. in lakh)
(1) (2) (3) (4) (5) (6) (7) (8)

11

SIG AT RE
GROUP OFFICER

Note: (I) This replaces the proforma in Statement 11 prescribed in the Revenue Audit Manual
(part I). Hence a separate information in Statement 11need not be sent.
(2) The statement may be prepared subject wise.

Annexure 25.2(vii)
(Due on 10th January and 10th July

Statement III

Details of cases contributed for Digest of important and interesting cases

(Six monthly of Central Excise and Service Tax)

SI. Nature of Name of CCE/Divn.l Name of Period Tax Deptt's Remarks I

No. objection Range assessee involved effect renlv

306