The power to levy a duty of excise manufactured or produced in India derives its authority from entry 84 of the Union List (List I) of Seventh Schedule read with Article 246 of the Constitution of India. Thus, Central Excise is a tax on the ‘act of manufacture or production’. Section 3 of the Central Excise Act, 1944 (hereinafter referred to as "the Act") is the charging section, which specifies the conditions under which Excise Duty is leviable on all excisable goods which are manufactured or produced in India. Education Cess is a duty of excise which is to be levied @ 2% of the aggregate duty of excise (vide Finance Act, 2004). As Education Cess and Higher Education Cess is a new levy it will not be payable on the opening stock of finished goods as on day 8-7-2004. The Secondary and Higher Education cess is payable at the rate of 1% on excise duty payable under section 3 of Central Excise Act with effect from 1-3-2007.

2.1 The taxable event for Central Excise duty to be attracted is manufacture or production in India of excisable goods. Section 2(f) of the Act defines the term "manufacture" in an inclusive manner so as to include 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 Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; and

(iii) Which in relation to goods specified in the Third Schedule to the Central Excise Tariff Act, 1985, involves packing or repacking of such goods in a unit, container or labelling or re-labelling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consumer.

(The clauses (ii) and (iii) above are termed as ‘deemed manufacture’.) The aforesaid definition gives a wider content to the expression "manufacture" as several processes which would not ordinarily be understood as amounting to manufacture are specifically included therein. However, the most commonly used test for ascertaining "manufacture" for the purpose of attracting Central Excise duty has taken place was evolved by the Supreme Court in the case of Delhi Cloth and General Mills 1977 (1) ELT (J 199). In terms of this decision, the activity or process in order to amount to "manufacture" must lead to emergence of a new commercial product, different from the one with which the process started. In other words, it must be an article with different name, character or use. Thus, a process which simply changes the form or size of the same article or substance would
not ordinarily amount to manufacture and no excise duty would be payable unless it is deemed to be manufacture as follows:

• In a particular case by a section or Chapter note of the Tariff; or

• In relation to goods, which are specified under MRP based assessment under section 4A, packing or repacking of such goods, labelling or re-labelling of containers including declaration or alteration of retail sales price shall amount to manufacture.

2.2. mEANING OF "GOODS"

Central Excise duty is levied on goods which are manufactured or produced. The understanding of term goods is of vide importance in determining the leviability of Excise Duty. The Act does not define the term "goods". The judgment of the Supreme Court in the case of Delhi Cloth and General Mills (supra) is considered to be the landmark judgment in this regard, where it is held that an ‘an article can be called "goods" if it is known to the market as such and can ordinarily come to the market for being bought and sold. Actual sale of the article is not important but it must be capable of being bought and sold’.

The marketability element of goods was enumerated in Union of India and Others, Appellants vs. Sonic Electro Chem (P) Ltd. 2002 (52) RLT 878 (SC) where the Supreme Court held that ‘the essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold.’ Whether immovable things are goods or not, was clarified in the case of Triveni Engg. vs. CCE 2000 (120) ELT 273 by the Supreme Court where it was observed that immovable property or articles embedded to earth, erections, turnkey projects are not generally termed as "goods" because they cannot ordinarily come to the market to be bought and sold.

The Explanation is added by Finance Act, 2008 under section 2(d) provides that goods includes any article, material or substance which is capable of being sold for consideration and such goods shall be deemed to be marketable.

2.3. MANUFACTURER — DUTY LIABILITY

The definition of manufacturer under the Act is an inclusive one and broadly specifies two categories of manufacturer; i.e., one who manufactures on his own account or one gets the goods manufactured through hired labour. Thus we can construe the meaning of the word manufacturer as understood in common terminology. Manufacturer may be understood as any person who is the creator, initiator and architect of the activities and the processes, which bring in existence a new and identifiable product/goods in the market. Thus a manufacturer is the one who undertakes manufacturing activity in reality. A purchaser of goods does not become manufacturer, he can only be termed as a supplier of raw material, if applicable or a person who gets goods manufactured according to his specifications or with his brand name. Here, it is worthwhile to mention that such contracts are on a principal to principal basis. A person supplying the raw material cannot be considered as hiring the job worker if he does not supervise and control the activities of the job worker. However if the manufacturer is a dummy or fake unit, then the raw material supplier or the brand name owner is deemed to be the actual manufacturer.

Section 3A incorporated in the Statute by Finance Act, 2008 provides power to the Central Government to charge excise duty on the basis of capacity to manufacture by manufacturer himself in respect of notified goods. Till today, the product under this sub-section has not been notified. Once the product has been notified, excise duty will be payable on the basis of capacity.

3.1 The charging section; i.e., section 3 specifies that the rates of Central Excise Duty shall be the rates as are specified in the Schedules to the Central Excise Tariff Act, 1985 (hereinafter referred to as "the Tariff"). The classification of goods in the Central Excise Tariff Act is comprised in two schedules; the First Schedule specifies the basic rate of excise duty and the Second Schedule specifies the special rate of excise duty. The first contains 96 Chapters grouped into 20 sections and has been selectively aligned with the Harmonised System of Nomenclature (The International Nomenclature adopted by more than 130 countries for international trade).

The correct classification of goods is necessary to ascertain the rate of duty on it. Thus, it is essential to determine the right heading or sub-heading of the Tariff under which the goods fall. This process of determining the right place of the goods in the tariff is called classification of goods. The chapter description read along with the section and chapter give us the classification statutorily, and in absence thereof the classification has to be done on trade or commercial parlance. The schedule to the Central Excise Act provides the following rules for interpretation of the tariff to aid in the classification of goods:

(i) A reference to a product includes an incomplete or unfinished product provided that the incomplete or unfinished product has the essential character of complete or finished goods.

(ii) A reference in heading to a material includes the reference to a mixture or combination of that product. The classification of goods consisting of more than one material shall be decided on the basis of the material which gives the essential character to the product.

(iii) A specific heading should be preferred to the more general heading.

(iv) In case the classification cannot be decided on the basis of above principle, the product shall be classified under a heading, which occurs last in the chapter/heading/sub-heading.

3.2 Importance of notification

The rate of duty prescribed against each of sub-heading specified in schedule to the Central Excise Tariff Act is known as tariff rate. The effective rate of duty must be ascertained by considering the various notification issued from time to time. The tariff rate read with the rate prescribed in the notification determined the effective rate of duty payable on clearance of goods.

4.1 Introduction

The levy of duty requires the valuation of the goods under consideration after establishing the duty liability and the classification of the goods. Except in cases where specific duty has been provided for on the basis of certain unit like weight, length, etc. as in case of goods like cigarettes (length basis), cement clinkers (per ton basis), for most of the goods the rates are specified on an ad valorem basis; i.e., expressed as a percentage of value of goods. Thus for calculating the amount of duty payable, first the assessable value of the goods has to be determined under the provisions.

4.2 The modes of valuation of goods under the Excise Act are:

(A) Tariff value

The Central Government is authorized under the provisions of section 3(2) of the Act, to fix the ‘tariff value’ for any goods which may be different for different classes of goods. This is also termed as the ‘notional value’. The duty in such cases is the % of such tariff value and not the Assessable Value.

(B) M.R.P. value

The Central Government under section 4A of the Act can notify goods on which excise duty will be payable on the MRP less % of abatement. Such value shall be deemed to be the assessable value in such cases. The provisions of this section are applicable to products which are statutorily required to put MRP under the Standards of Weight and Measures Act, 1976, or any other law and in respect of which specific notification has been issued.

(C) Transaction value

(i) In respect of all other goods which are not covered by the above-mentioned provisions, their assessable value would be in terms of "transaction value" as provided in section 4 of the Act. The assessable value would be the transaction value when the goods are sold by an assessee for delivery at the time and place of removal, where the assessee and the buyer are not related and price is the sole consideration. In all other cases, which do not fulfil the aforesaid conditions, value shall be determined as per the Central Excise Valuation Rules, 2000. The definition of transaction value as per section 4(3)(d) means the price actually paid or payable for the goods when sold, and includes 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 at the time of sale or any other time. The definition gives an inclusive but not exhaustive list of additions and deductions from the invoice price in respect of certain amounts.

(ii) The valuation rules have to be followed when transaction value cannot be determined under section 4(1); which are enumerated below:

(a) If goods are not sold at the time of removal, the value of excisable goods shall be value of goods sold by the manufacturer for delivery at any other time nearest to the time of removal of goods except in cases of stock /branch transfer, sale to related person, job work where specific provisions have been made. (Rule 4)

(b) In case goods are sold for delivery at any other place other than the place of removal, the value will be the price less the actual cost of transportation from place of removal to the place of delivery. (Rule 5)

(c) In case the price is not the sole consideration in respect of any transaction, the value of goods shall be the aggregate of such transaction value and the amount of money value of additional consideration flowing directly or indirectly from buyer to the assessee. (Rule 6)

(d) In case where goods are cleared to depot, consignment agent etc., transaction value shall be the normal transaction value of such goods sold from such other place at or about the same time. The normal transaction value is the price at which the greatest aggregate quantity of goods are sold. (Rule 7)

(e) In case of consumption of goods captively; i.e., consumed by the assessee or on his behalf, the value shall be 110% of the cost of production. (Rule 8)

(f) In case of sale of goods to a related person, the value shall be the price at which the related person has sold the goods to an unrelated person. In case a related person does not sell the goods but uses or consumes the goods in production or manufacture of the article, the value shall be 115% of the cost of production. (Rule 9)

(iii) The following deduction can be made from the transaction value for determination of value under section 4

(a) Trade discount

The Board has clarified as follows: —

"Discount of any type or description given on any normal price payable for any transaction will 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. However, it is important to establish that the discount has actually been passed on to the buyer of the goods. The different type of discounts extended as per commercial considerations on different transactions to unrelated buyers if extended is also permissible and different actual prices paid or payable for various transactions are to be accepted."

"The Larger Bench of Tribunal in the case of Arvind Mills Ltd. 2006 (204) ELT 570 (Tri LB) has held that even the new section 4 introduced w.e.f. 1-7-2000, quantum of cash discount offered to the customer should be allowed as deduction even if some of the customers has not availed the benefit of cash discount. Cash discount in such case will not be passed on to the customers as the customers has not paid within the stipulated period".

(b) Tax and duties

The definition of transaction value stipulate that excise duty, sales tax and other taxes paid or payable shall be excluded from the transaction value.

(c) Freight

The cost of transportation can be excluded even when freight is averaged and also there is no condition that the cost of transportation should be shown separately in the invoice. The cost of transportation will include the cost of insurance during transportation of goods.

(d) Interest for delayed payment

Interest for delayed payments is a normal practice in industry. Interest under a financing 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:

The interest charges are clearly distinguished from the price actually paid or payable for the goods.

The financing arrangement is made in writing; and Where required, assessee demonstrates that such goods are actually sold at the price declared as the price actually paid or payable.

(e) Erection, installation and commissioning charges

If the product after erection, installation and commissioning is not excisable the question of including these charges in the assessable value of the product does not arise.

(iv) Inclusion in the price

Some of the expenditures like packing charges, designing and engineering charges, handling charges incurred within the factory are required to be included in the price if they are not already included.

Section 6 provides that any person who is engaged in the production or manufacture of specified goods or the wholesaler engaged in purchase or sale or the storage of any specified goods shall be liable to get himself registered with the proper officer as per provision contained in Rule 9 of the Central Excise Rules.

Thus manufacturers or dealers who intend to issue cenvatable invoices should get registered themselves. Application for registration has to be made in Form A-1 in the office of the jurisdictional AC/DC. The assessee will be issued a 15 digit registration number and a registration certificate on completion of the registration procedure.

The notification No. 36/2001 (NT) provides exemption from registration to the following persons:—

(i) Person who manufactures those goods which are chargeable to NIL rate of duty or remains fully exempt from whole of duty.

However if the exemption from payment of whole of duty is based on the value of clearance made in a financial year, the value of clearance shall not exceed Rs. 1.5 crore.

Such manufacturer shall file the declaration in prescribed form with the jurisdictional AC/DC if his value of clearance in the previous financial year exceeds Rs. 90 lakhs.

(ii) Person manufacturing excisable goods by following the warehousing procedure as provided in the Custom Act, 1962.

(iii) Person engaged in the wholesale trade except first stage dealer and second stage dealer.

(iv) Person who uses excisable goods in any purpose other than processing or manufacture of any goods availing benefit of exemption.

As per Rules 8, 10, 11 & 12 of Central Excise Rules, 2002, registered person is required to follow the following procedure for clearance of goods:

(a) Maintain Daily Stock Account (DSA) indicating the opening balance, quantity produced, inventory of goods, quantity removed, assessable value, the amount of duty payable and duty paid on manufactured goods.

(b) The goods should be removed under invoice. The invoice shall be prepared in triplicate. Original for buyer, duplicate for transporter and triplicate for assessee. It shall be serially numbered and shall contain the registration number, name of the consignee, description, classification, time and date of removal, mode of transportation, vehicle registration number, rate of
duty, quantity and value of goods and duty payable thereon.

(c) The excise duty on the goods removed shall be paid by 5th of the following month but the goods removed during the month of March the duty shall be paid by 31st March. However, in case of small scale manufacturer the duty is payable by 5th of the following month after end of the quarter. In this case also the duty for quarter Jan to March is payable by 31st March.

(d) The ER-1 return shall be filed within 10 days from the close of the month to which the return relates. However where the assessee has availed the benefit of the notification providing exemption based on value of clearance in a financial year, he shall file the return within 10 days after the end of quarter.

Rule 7 of the Central Excise, 2002 provides that where assessee is unable to determine the value of excisable goods or the rate of duty he shall request the Assistant Commissioner or Deputy Commissioner for permitting him to make the assessment provisional. The Assistant Commissioner will ask the assessee to execute bond supported by Bank Guarantee to make the assessment provisional.

8.1 This notification provides exemption from whole of duty leviable on goods specified in annexure to the notification up to the aggregate value of clearance of Rs. 1,50,00,000/- . In computing 1,50,00,000/- the following clearance shall not be taken in account:

a) Clearances, which are exempt from the whole of the excise duty leviable thereon ( other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason;

b) Clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4;

c) Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods;

8.2 The benefit is available to small scale manufacturer where:

a) The value of clearance in the previous financial year shall not be exceeds Rs. 4 crore

b) The goods have not been affixed with the brands name of other person.

In computing the value of clearance of Rs. 4 crores. The following clearance shall not be considered :

a) Clearance of excisable goods without payment of duty—

i) To a unit in a free trade zone or

ii) To a unit in a special economic zone; or

iii) To a hundred percent export oriented undertaking; or

iv) To a unit in an Electronic Hardware Technology Park or Software Technology Park; or

v) Supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification No. 108/95.

b) Clearance bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4 of the notification.

c) Clearance of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified
goods.

d) Clearance, which are exempt from the whole of the excise duty leviable thereon under notification No. 214/86-Central Excise or No. 83/94-Central Excise or 84/94- Central Excise.

8.3 If a manufacturer clears the specified goods from one or more factory the exemption shall applicable to the aggregate value of clearance of all the products cleared by the manufacturer from all the factories.

8.4 Where the specified goods are cleared by one or more manufacturer from the facto the exemption shall apply to aggregate value of clearance of specified goods by all the manufacturers. The exemption will not available separately to each manufacturer.

As per the provision of section 11A the show cause notice for recovery of duty short paid, short levied or not paid or not levied or refunded erroneously shall be served by the proper officer within a period of one year from the relevant date. In case the demand for duty arises on account of fraud, collusion, misstatement or suppression for facts or contravention of any of the provisions of the Act or rules with intent to evade payment of duty the period of one year will be extended to 5 years.

The Central Excise Officer after considering the submission made in reply to show cause notice as well as during personal hearing shall pass the order called Order-In-Original either confirming the demand or dropping the demand or partly confirming the demand and levy of penalty and interest. An appeal can be filed by the aggrieved person against order-in-original.

9.1 Interest is also payable on the demand of duty under section 11AB of Central Excise Act. The interest on demand of duty is payable from the date of the month succeeding the month in which duty ought to have been paid under this Act or from the date of erroneous refund granted as the case may be.

10.1 Powers of Committee of Chief Commissioner of Central Excise or Commissioner of Central Excise

The Committee of Chief Commissioner of Central Excise shall examine the records of any order passed by the Commissioner of Central Excise as Adjudicating Authority under this Act and if they are not satisfied as to the legality or proprietary of any such decision or order, they shall direct the Commissioner to file an appeal to the Appellate Tribunal for determination of such points arising out of the decision or order.

The Committee of Commissioner of Central Excise shall examine the records of any proceedings in which officer subordinate to him has passed the adjudicating order under this act for the purpose of satisfying as to the legality or proprietary of such decision. In case the Commissioner of Central Excise is not satisfied, he shall direct such authority or any Central Excise officer to appeal to the Commissioner of Central Excise (Appeal) for decision.

10.2 Time Limit and appellate authority

The time limit for filing an appeal before Commissioner of Appeals will be sixty days against the order-in-original passed by an officer of Excise/Customs below the rank of Commissioner. In the case of an appealable order passed by the Commissioner (Additional Commissioner is not regarded as Commissioner for this purpose) or by Commissioner of Appeals, appeal can be filed before the CESTAT within three months. The Larger Bench of the Tribunal has held in Eicher Motors vs. Commissioner 2000 (116) ELT 306 that only one appeal to the Tribunal need be filed where the impugned order is one irrespective of the number of show cause notices or bills of entry it relates to.

10.3 Appeal to Customs, Excise and Service Tax Appellate Tribunal

An appeal against the order passed by the Commissioner of Excise/Customs as an adjudicating authority or an order passed by the Commissioner (appeals) lies to the Customs, Excise and Service Tax Appellate Tribunal [earlier CEGAT (Customs Excise and Gold (Control) Appellate Tribunal)] which is formed under the provisions of the Act. However, under Excise in matters of loss of goods occurring in transit from factory to warehouse, rebate on duty of goods exported and goods exported without payment of duty, and similarly under the custom provisions in matters of order in relation to baggage, goods short-landed, or payment of duty drawback by the Commissioner (Appeals), the Tribunal is not empowered to admit the appeal. In such cases, a revision application has to be filed to the Government under the provisions of section 35EE of the Central Excise Act, 1944 (parallel section 129DD of the Customs Act). Section 35G of the Central Excise Act, 1944 (parallel section 130 of the Customs Act) is amended regarding appeals from the orders of the CESTAT.

10.3.2 Appeals against the orders of the Tribunal on matters other than relating to the determination of any question having a relation to the rate of duty of customs or to the value of goods shall be filed in the High Court. The High Court will formulate the question of law after satisfying itself that substantial question of law is involved. The new provision shall apply to the orders of the Tribunal on or after 1st of July, 2003. The appeal is to be filed within 180 days of the receipt of the order appealed against by the Commissioner or the other party. The amendment in the Central Excise Act empowers the High Court to condone the delay in filing of the appeal in cases where the appeal is filed beyond 180 days and there is sufficient cause for non filing of appeal within time.

10.3.3 An appeal shall lie to the Supreme Court from — Any judgment of the High Court delivered —

(a) (i)  In an appeal made under section 35G of the Central Excise Act, 1944 (parallel section 130 of the Customs Act);

(ii) On a reference made under section 35G of the Central Excise Act, 1944 by the Tribunal before 1st July, 2003 (parallel section 130 of the Customs Act);

(iii) On the reference made under section 35H of the Central Excise Act, 1944 (parallel section 130A of the Customs Act), In any other case, which on its own motion on an oral application made by or on behalf of the party aggrieved, immediately after passing of the judgement, the High Court certifies to be a fit one for appeal to the Supreme Court.

(b) in an appeal against any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of Excise/ Customs or to the value of goods for purposes of assessment under either acts.

10.4 Procedure to be followed

The Appellate Tribunal is required to hear and decide every appeal within a period of three years from the date on which the appeal is filed, where it is possible to do so (vide the Finance Act, 2002). But where the Appellate Tribunal has made an order of stay in any proceedings relating to an appeal, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days (six months approximately) from the date of the stay order. If the appeal is not so disposed of the stay order shall, on the expiry of the said period, stand vacated. However in the case of IPCL vs. CCE Vadodara, 2004 (63) RLT 1, the Hon’ble CESTAT-LB has held that ‘the Tribunal has the jurisdiction to grant stay even after the expiry of 180 days from the date of initial order of stay.’

The procedure for settlement of any dispute with Settlement Commission under the Central Excise Act is as follows:

(A) Application for settlement of case — The assessee shall make full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer by filing the application form declaring the additional excise duty accepted to be payable by him. The application shall be admitted if the applicant has (a) filed return showing production, clearance of excise duty paid in the prescribed manner (b) Received Show cause notice for recovery of duty (c) Additional amount of duty accepted is not less than Rs. 3 lakhs with effect from
1-6-2007, (d) Paid admitted duty liability and the amount of interest if the application is made after 1-6-2007. (e) Made payment of fee of Rs. 1,000/-.

(B) Settlement Commission, issue notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with and after taking into consideration of the explanation, allow the application to be proceeded with or reject the application as the case may be. If no notice is issued within 7 days the application is deemed to have been accepted.

(C) The Settlement Commission shall call for report within 7 days after the application has been accepted from the Commissioner of Central Excise/Customs having jurisdiction over the assessee. The Commissioner shall furnish the report within 30 days from the date of communication. In case no report is received the Settlement Commission shall proceed further in the matter without report.

(D) After receipt of report, the Settlement Commission may after examining the report ask / direct the Commissioner (Investigation) to make further enquiry. The Settlement Commission shall issue direction within 15 days from the date of receiving the report from Jurisdictional Commissioner who then shall furnish the report within 90 days from the receipt of communication from Settlement Commission.

(E) The Settlement Commission shall grant opportunity, to the applicant and the Commissioner, of personal hearing.

(F) The Settlement Commission shall pass final order within 9 months from last date of the month in which the application is made failing which the settlement proceedings will abate and the adjudicating authority shall have the power to dispose of the show cause notice.

(G) Every order of the Settlement Commission passed under rule 32F will be final. The Settlement Commission has power to grant immunity of prosecution and penalty under the Central Excise Act or Customs Act.

Section 11B of Central Excise Act provides that any person claiming refund of duty of excise shall make an application for such amount to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise in such form and manner as may be prescribed. The application shall be accompanied by the documentary evidence which evidences payment of duty and also other documents to substantiate that incidence of duty has been borne by the applicant. In case it is not substantiated that the incidence of duty has not been borne by the applicant, the refund amount shall be credited to Consumer Welfare Fund. A refund application should be filed within one year firm the date of payment of Duty. By Finance Act, 2008 even interest paid by the manufacturer shall also refunded. The period of one year shall not apply where any duty has been paid under protest.

12.1 Interest on delay in granting fund

In case the refund has not been granted within a period of 3 months from the date of application, the applicant shall be entitled to the interest @ 9% of the duty amount from the date immediately after the expiry of 3 months from the date of receipt of such application.

13.1 Section 11AC of the Act, provides for levy of penalty equal to the duty amount where the demand for duty has been confirmed by reason of fraud, collusion or any wilful missstatement or suppression of fact or contravention of any of the provision of Act. with intend to evade payment of duty.

The Hon’ble Supreme Court has in the case of Dhamendra Textile has held that the penalty in section 11AC shall be levied even if the duty and interest has been paid prior to issue of show cause notice. Where details of the transactions are available in the specified records, the maximum penalty amount under section 11AC shall be equal to 50% of the duty so determined. However, first proviso to section 11AC provides that if the duty/interest is paid within 30 days of the communication of the order, the amount of penalty shall be reduced to 25% of the duty determined provided penalty is also paid.

13.2 Rule 25 of the Central Excise Rules provides for levy of penalty on manufacturer, Registered person of warehouse or registered dealer where such person

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 manufacturer, 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 the goods in respect of which the contravention has been made shall also be confiscated and penalty not more than the duty amount or Rs. 2000/- whichever is higher shall be levied.

13.3 Rule 26 of the Central Excise Rules, provides that any person who issues-—

i) An excise duty invoice without delivery of goods specified therein or abets in making such invoice or

ii) Any other document or abets in making such document, on the basis of which user of said invoice or document is likely to take of has taken any ineligible benefit under the Act or the rules made there under like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund,

shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.

13.3.1 Any person who acquires possession of, or is in any way 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 these rules.

13.4 In case, any other penalty is provided under the rule, the penalty shall not exceeded beyond Rs. 5000/- and goods shall be confiscated.

Section 14A of the Act empowers the Chief Commissioner of Central Excise to appoint the cost accountant (now also Chartered Accountant) for auditing the records of any manufacturer in order to determine the value of the goods manufactured by him. As per the provisions if at any stage of enquiry, investigation or other proceedings before any Assistant Commissioner or Deputy Commissioner, it is felt that the value has been correctly declared or determined, the Assistant Commissioner or Deputy Commissioner may send the proposal for audit of the records at factory, office, depot, distributor etc. Similarly, if the Commissioner has reason to believe that the credit of duty availed or utilized is not within any normal limits, having regard to the nature of exciseable goods produced, he may appoint Cost Accountant (now also Chartered Accountant) for verifying the availment and utilization of credit.

If a person commits any of the following offence —

a) Possesses the goods in excess of the quantity prescribed for the notified goods or of any variety of such goods.

b) Transport the goods which are prohibited absolutely or with such exceptions or conditions notified by central government.

c) does not obtain registration under the Act

d) evade payment of duty

e) Removes any excisable goods in contravention of provision of any of the Act or concerns himself with removal.

f) acquires possession of, or in any way concerns himself in transporting, 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 this Act or any rule made thereunder;

g) contravenes any of the provisions of this Act or the rules made there under in relation to credit of any duty allowed to be utilized towards payment of excise duty on final products.

h) fails to supply any information which is required by rules or supplies false information

i) attempts to commit or abet commission of any of the offence specified in (a) to (d) above.

then the person shall be punishable

1) whether the duty exceeds Rs. 1 lac with imprisonment for a term which may extend to 7 years and with fine

2) in any other case for imprisonment which may extend to three years or with fine or both.