Central Excise Duty Day – Tracing dynamics under the GST Regime

Last Updated at: October 23, 2019
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Central Excise Duty Day- Tracing dynamics under the GST Regime

The Central Excise is a tax that was levied on ‘manufacturing.’ The liability to pay central excise arose when goods are manufactured irrespective if they were sold or not. Through this post, we elucidate the facets of the Central Excise Duty and the impact of GST on it.

Every year, the Government of India marks the 24th of February as Central Excise day. While as ordinary citizens paying taxes, we may wonder about the need of celebrating a day dedicated to taxation, the collection of duties through the imposition of Central Excise have played a pivotal role in adding to the tax revenue of our nation. In this post, we highlight important facets of the Central Excise Duty and also contrast it with other important taxes like Income Tax and GST.

Below you’ll find some of the services provided at Vakilsearch that may answer your on the procedure, documents and process flow for a government or tax registration.

 

Why was Central Excise levied?

Central Excise, as an indirect tax was meant to collect revenue from manufacturing activities. An indirect tax means that the final burden of the tax amount, even though paid by the manufacturer, is passed on to the customer by way of an addition to the cost of goods. Until the year 2007, Central Excise contributed the largest share of tax revenue to the Central Government, after which its place was taken by corporate and personal income taxes.

When would the liability to pay Central Excise arise?

Since Central Excise is a tax on ‘manufacturing’, the liability to pay this tax arises when goods are manufactured. Actual sale is not necessary as goods manufactured for internal consumption, as input goods are also considered taxable.

Get Your Taxes Prepared by Experts

GST and Central Excise – Comparisons

The passing of the 122nd Constitutional Amendment Act in 2014 subsumed most central duties under the Goods and Service Tax regime that include the following central-level taxes:

  • Central Excise Duty (CENVAT)
  • Additional Excise Duties
  • The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act 1955
  • Service Tax
  • Additional Customs Duty, commonly known as Countervailing Duty (CVD)
  • Special Additional Duty of Customs – 4% (SAD)
  • Surcharges and Cesses levied by Centre are also to be subsumed as they are in the nature of taxes on goods or services
  • Central Sales Tax to be phased out

GST, said to be one of the most voluminous taxes now led to several controversies between states and among tax practitioners on the principles underlying the levy. One such matter of contention was whether GST was replacing Central Excise Duty. It is important to reflect on the legislative intention and features of these two different forms of taxation. While Central Excise was supposed to be a levy on “manufacture” of goods, GST, as the bill states is a “tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption”. Although the same HSN Classification under Central Excise is followed under GST, the element of Central excise is now represented by CGST, which belongs exclusively to the Centre.

Removing double taxation and multiple filings under the erstwhile regime

A manufacturer has to keep multiple records under the old regime, for filing Central Excise, VAT, Sales Tax returns etc. Under the subsumed regime of GST, manufacturers’ compliance burden has been reduced due to uniformity and singularity in the filing mechanism of GST. The provisions of input tax credit are available even under GST. The layered mechanism of multiple taxation under the Excise regime gave rise to double taxation, where manufactured goods on which excise duty was paid, were still subject to VAT and other duties.

Moreover, under Excise, there was no concept of a composite scheme for dealers with turnover below a prescribed threshold. Now, under GST, small dealers with a turnover of less than one crore can pay GST at a pre-specified rate of a maximum of 3 per cent (CGST). The rates under Excise varied greatly as per the classification assigned, but under GST, there are streamlined brackets of rates such as 0, 5, 12, 28 per cent etc.

Excise to exist on certain products

After much parliamentary deliberation, five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out of the purview of Goods and Service Tax. On these products, excise duty will continue to be levied.

In short, the element of Central excise is now represented by CGST, which belongs exclusively to the Centre. Before GST, a manufacturer had to comply with Central Excise, VAT, Sales Tax returns, etc. Now, their burden has been dramatically reduced to filing a single GST return!

Frequently Asked Questions

Why do we file income tax returns?

Filing your tax return is the way of having a legitimate proof of your income. It helps to establish a good record with the IT department. Learn More about Income Tax filing

How is ESI PF calculated from Salary?

The employee contribution to the PF is calculated at 12% rate and is paid on basic +DA only. The employer contributes 8.33% and employee 3.67% . More info on ESI registration

Who needs to register with FSSAI

The Food Business Operators such as small-size manufacturers, petty food manufacturers, retailers, distributors, marketers, storage units, transporters, etc. are hence needed to obtain FSSAI registration. More information on FSSAI


What is the use of ISO certification

ISO 9001 is an international certification assuring quality management. This will many advantages and keep the company finding ways to improve on a continual basis. More on ISO Certification


What is the threshold limit for TDS on rent?

Any entity be it firms, companies or partnerships or individual paying a rent of over Rs. 2,40,000 per year is liable to get TDS deducted on the same. Details on TDS Return Filing


How do you check if a name has been trademarked?

Visit the trademark search database with the help of web browser, and do trademark search in India.Select wordmark at the beginning of the page. Details on Trademark Registration

Who can avail MSME loan?

To apply for a MSME loan, you must be a self-employed professional, self-employed non-professional or an entity such as a partnership, private limited limited, liability partnership or a closely held limited company. Learn more about SSI/ MSME Registration

Central Excise Duty Day – Tracing dynamics under the GST Regime

1075

The Central Excise is a tax that was levied on ‘manufacturing.’ The liability to pay central excise arose when goods are manufactured irrespective if they were sold or not. Through this post, we elucidate the facets of the Central Excise Duty and the impact of GST on it.

Every year, the Government of India marks the 24th of February as Central Excise day. While as ordinary citizens paying taxes, we may wonder about the need of celebrating a day dedicated to taxation, the collection of duties through the imposition of Central Excise have played a pivotal role in adding to the tax revenue of our nation. In this post, we highlight important facets of the Central Excise Duty and also contrast it with other important taxes like Income Tax and GST.

Below you’ll find some of the services provided at Vakilsearch that may answer your on the procedure, documents and process flow for a government or tax registration.

 

Why was Central Excise levied?

Central Excise, as an indirect tax was meant to collect revenue from manufacturing activities. An indirect tax means that the final burden of the tax amount, even though paid by the manufacturer, is passed on to the customer by way of an addition to the cost of goods. Until the year 2007, Central Excise contributed the largest share of tax revenue to the Central Government, after which its place was taken by corporate and personal income taxes.

When would the liability to pay Central Excise arise?

Since Central Excise is a tax on ‘manufacturing’, the liability to pay this tax arises when goods are manufactured. Actual sale is not necessary as goods manufactured for internal consumption, as input goods are also considered taxable.

Get Your Taxes Prepared by Experts

GST and Central Excise – Comparisons

The passing of the 122nd Constitutional Amendment Act in 2014 subsumed most central duties under the Goods and Service Tax regime that include the following central-level taxes:

  • Central Excise Duty (CENVAT)
  • Additional Excise Duties
  • The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act 1955
  • Service Tax
  • Additional Customs Duty, commonly known as Countervailing Duty (CVD)
  • Special Additional Duty of Customs – 4% (SAD)
  • Surcharges and Cesses levied by Centre are also to be subsumed as they are in the nature of taxes on goods or services
  • Central Sales Tax to be phased out

GST, said to be one of the most voluminous taxes now led to several controversies between states and among tax practitioners on the principles underlying the levy. One such matter of contention was whether GST was replacing Central Excise Duty. It is important to reflect on the legislative intention and features of these two different forms of taxation. While Central Excise was supposed to be a levy on “manufacture” of goods, GST, as the bill states is a “tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption”. Although the same HSN Classification under Central Excise is followed under GST, the element of Central excise is now represented by CGST, which belongs exclusively to the Centre.

Removing double taxation and multiple filings under the erstwhile regime

A manufacturer has to keep multiple records under the old regime, for filing Central Excise, VAT, Sales Tax returns etc. Under the subsumed regime of GST, manufacturers’ compliance burden has been reduced due to uniformity and singularity in the filing mechanism of GST. The provisions of input tax credit are available even under GST. The layered mechanism of multiple taxation under the Excise regime gave rise to double taxation, where manufactured goods on which excise duty was paid, were still subject to VAT and other duties.

Moreover, under Excise, there was no concept of a composite scheme for dealers with turnover below a prescribed threshold. Now, under GST, small dealers with a turnover of less than one crore can pay GST at a pre-specified rate of a maximum of 3 per cent (CGST). The rates under Excise varied greatly as per the classification assigned, but under GST, there are streamlined brackets of rates such as 0, 5, 12, 28 per cent etc.

Excise to exist on certain products

After much parliamentary deliberation, five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out of the purview of Goods and Service Tax. On these products, excise duty will continue to be levied.

In short, the element of Central excise is now represented by CGST, which belongs exclusively to the Centre. Before GST, a manufacturer had to comply with Central Excise, VAT, Sales Tax returns, etc. Now, their burden has been dramatically reduced to filing a single GST return!

Frequently Asked Questions

Why do we file income tax returns?

Filing your tax return is the way of having a legitimate proof of your income. It helps to establish a good record with the IT department. Learn More about Income Tax filing

How is ESI PF calculated from Salary?

The employee contribution to the PF is calculated at 12% rate and is paid on basic +DA only. The employer contributes 8.33% and employee 3.67% . More info on ESI registration

Who needs to register with FSSAI

The Food Business Operators such as small-size manufacturers, petty food manufacturers, retailers, distributors, marketers, storage units, transporters, etc. are hence needed to obtain FSSAI registration. More information on FSSAI


What is the use of ISO certification

ISO 9001 is an international certification assuring quality management. This will many advantages and keep the company finding ways to improve on a continual basis. More on ISO Certification


What is the threshold limit for TDS on rent?

Any entity be it firms, companies or partnerships or individual paying a rent of over Rs. 2,40,000 per year is liable to get TDS deducted on the same. Details on TDS Return Filing


How do you check if a name has been trademarked?

Visit the trademark search database with the help of web browser, and do trademark search in India.Select wordmark at the beginning of the page. Details on Trademark Registration

Who can avail MSME loan?

To apply for a MSME loan, you must be a self-employed professional, self-employed non-professional or an entity such as a partnership, private limited limited, liability partnership or a closely held limited company. Learn more about SSI/ MSME Registration

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.