Excise Duty: Nature of Excise Duty

The excise duty falls under the Excise Duty Act, 1944. The State Government charges them on certain goods such as narcotics, alcohol or alcoholic products, the duty charges on other goods are collected by the Central Government, hence the term, ‘Central Excise Duty’. The tax is however, collected by the Government when the good are being removed from the factory and dispatch.

Nature of Excise Duty

Entry No. 84 of list I of seventh Schedule to the Constitution includes ” duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquor for human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol, opium or narcotics”.

In some cases, duty is payable on ‘deemed manufacture’. Even if such duty is not covered under Entry 84, it can get covered under residual entry 97. Thus, excise duty is levied under Entry 84 and 97.

Power to impose excise on alcoholic liquors, opium and narcotics is granted to States under Entry No. 51 of II of seventh Schedule to the Constitution and it is called ‘State Excise’.

Types of Excise Duty

1. Duties under Central Excise Act: Basic duty and special duty, also known as CENVAT, is levied under Section 3(1)(a) of Central Excise Act.

  1. Basic Excise Duty to be Termed as CENVAT: This duty, also known as CENVAT, is levied at the rates specified in First Schedule to the Central Excise Tariff Act. Currently the general rate of excise duty on non-petroleum products is 12.5%. However, there is no education cess at all. This duty is applied to majority of the excisable goods.
  2. Special Duty of Excise: Some commodities are leviable with special duty. [Section 3 (1)(b) of CEA]. These items are covered in Schedule II to Central Excise Tariff. All goods specified in second schedule to Central Excise Act i.e. which are leviable to SED have been exempted from duty leviable under second schedule. These have been merged with basic duty as per First Schedule to Central Excise Act. Presently, there is no SED on any product.

2. Education Cess: Education cess of 2% has been imposed, which is payable on central excise, customs, service tax and income tax. Education cess on excise and customs had become effective immediately w.e.f. 9-7-2004, While cess on service tax became effective with effect from 1-9-2004. If excise duty is exempt, education cess is also exempt.

3. Secondary and Higher Education Cess: In additional to existing education cess, and SAH education Cess of 1% of the total duties of excise has been imposed on imported goods vide section 136 read with section 138 of Finance Act, 2007.

4. National Calamity Contingent Duty (NCCD): It imposed vide Section 136 of the Finance Act, 2001 on pan masala, branded chewing tobacco, cigarettes, domestic crude oil and mobile phones. This rate is 1% on basic Excise Duty.

5. Additional Duty on Goods of Special Importance (AED [GSI]): Some goods of special importance are levied Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957. The ‘Additional Duty’ is in addition to excise duty. This scheme was introduced based on the suggestion made by the manufacturers to Government, that multiple level taxes and duties should be avoided. Levy and collection of all taxes at one stage by single authority will be convenient for payment and administration. Hence, by agreement between Central and State Governments, it was decided to make a beginning in 1957, by selecting some items where additional duty will be collected instead of sales tax and such additional duty will be distributed among various States. Revenue from this duty is distributed among State Governments on the basis of percentages given in the second schedule to the Act.

Excise Rates

Basic Excise Duty (BED) is levied u/s 3(1) of Central Excise Act. The section is termed as ‘charging section’. The standard rate of basic excise duty is 12.50%. It should be mentioned here the BED will vary product-wise according to the rate mentioned in CETA.

Education Cess which was earlier 2% of excise duty has been fully exempted w.e.f 01.03.2015.

Secondary and Higher Education Cess which was earlier 1% of the total duties of excise has also been fully exempted w.e.f. 01.03.2015. Thus, the basic rate of excise duty of 12.5% unchanged in AY 2017-18.