By CA Rajesh Kumar T R
By CA Ashish Chaudhary
Excise Duty has been imposed on the article of jewellery in the Union Budget 2016-17. There has been protest by trade fearing the nuisances of excise. There fear is not without justifiable reasons considering the rigorous provisions of Gold Control Act, 1968 which they were subjected to. It is perceived that if the duty is reintroduced, they would again be going back to the old regime where inspector raj would prevail.
But these fears may not be of much relevance considering the paradigm shift as to the manner in which present excise law functions viz a vizearlier Gold Control Act and Excise law of couple of decades ago. We have attempted to discuss few of fears being faced by Industry and their validity.
1. Inspector Raj: The industry has feared that imposition of excise duty would reintroduce “Inspector Raj”. This may not be true under present excise regime which has completely been made based on self-assessment in 1996. Unlike under earlier regime where each removal of goods from the factory used to be under presence of inspector. Now the assessee can remove the goods from his factory/workshop based on proper excise invoice, charge appropriate duty, account for duty liability, periodical self payment of duty and filing of periodical return. There is no need of making any interaction with departmental office at any of the above stages.
2. Dreadful experience of Gold Control Act, 1968: The Act was introduced in 1968 and contained several provisions which virtually killed the industry. Few of such provisions being prohibition from owning gold in the form of bars and coins, compulsory conversion of bars and coins to jewellery, goldsmith not allowed to own more than 100 gms of gold, licensed dealer not supposed to own more than 2 kg of gold, ban on trading with each other etc. This legislation killed the official gold market and a large unofficial market sprung up dealing in cash only. None of these provisions are there under present excise law. Each jeweller/manufacturer/trader/ goldsmith is allowed to do their business in normal course without subjected to any of regulations of these natures.
3. Compulsory assessment: Being self assessment regime, the information furnished by assessee is considered true and correct (unless contrary circumstances exist). There is no compulsory annual assessment at department end.
4. Interaction with department for furnishing information: There is no need to visit department for taking registration, payment of duty or filing of return. All such functions can be done online sitting at your office. There is no need of furnishing any of such information to department.
5. Visit by department officer: Registration is granted under excise after visit by department officer. It is felt that if the visit is permitted to inspectors, they would be visiting the premise unnecessarily and may result in “haftavasuli”. But this fear of industry has already been taken care of by Government by providing the specific provisions that no department officer shall visit the factory of jeweller by making necessary amendment in the Notification No. 35/2001- CE (NT). Instructions are issued whereby it is stated that officer at commissioner level is accountable for any violation in this regard.
6. Visit to job worker’s premise: There is specific provision under Central Excise providing that job worker shall not be liable to duty of excise and the liability shall be exclusively on the principal. When job worker is not considered assessee at all, there cannot be any visit to his premise by department officer.
7. Increased compliance and documentation formalities: No doubt, imposition of new of tax invariably adds to compliance burden and documentation formalities. But the government has provided for simplified procedures in case of jewellery sector. The documentations/records maintained by assessee for the purpose of VAT law/internal recording purpose would be considered sufficient for excise also. Still there could be certain areas where trade may face compliance and documentation burden. It is expected that the High Level Committee constituted which would certainly look into the matter and provide for more simplified process and procedure for smooth functioning. This requires active participation by all stakeholders so that they may bring the problems anticipated by them before the committee to take suitable measures to simplify the procedural aspects of law.
8. Burden on small manufacturers & job workers: It is feared that small manufacturers and job workers would be badly impacted by excise duty imposition in terms of obtaining registration, maintaining necessary documentations and making other compliances. But this may not be correct as job workers are exempted from taking registration absolutely. Also small manufacturers exempted from excise levy as exemption has been provided to manufacturer whose turnover does not exceed Rs. 6 crore subject to previous year turnover of Rs. 12 crore.
9. Obtaining registrations at all workshops/showrooms: Another apprehension of the industry considering the provision of excise is that they may have to obtain registration for each of the workshops/showrooms separately. But realising the peculiarities of industry, the government has provided simplified mechanism of taking centralised registration. There is no need of taking separate registration for each of the premises.
10. Valuation for excise duty payment: The prices of jewellery are subject to frequent fluctuations and it may pose serious challenge in valuing the jewellery for payment of excise duty. Considering the complexities, government has provided that first sale value may be taken as basis for payment of duty. This would relieve the manufacturer from making valuation of each of removal separately.
11. Imposition of penalty equivalent to duty not paid(Section 11AC): There is power to impose the penalty equivalent toduty not paid. However, the power is limited in following cases:
If none of the above ingredients are present, penalty cannot be imposed. Hence, in case of bonafide assessee who has been complying with the law and there is no intentional evasion of duty, the penalty cannot be imposed.
12. Power of provisional attachment of property for 6 months (11DDA): The attachment of property cannot be routine exercise. Where a person has not complied with the law with an intention to evasion of tax and the department is not able to recover the duty not paid, there may be order for provisional attachment for six months. The order for provisional attachment can be given only with prior permission of Commissioner recorded in writing.
13. Refining (melting and freezing) of gold to be done through government agency: There has been apprehension that gold refining could be carried out only through government agency. But there is no such provision in the Central Excise Law mandating it to be done through government. This could be done through any body.
14. Confiscation of gold not recorded properly by job worker and other processers: There is apprehension that the gold found at job worker premise shall be confiscated if they fail to maintain proper records of that. But this is not correct as the job workers are out of excise net. Further, there is clear instruction to department officials not to visit the premise of the job worker. Hence, this fear in the industry is also not correct.
15. Power to confiscate goods (Rule 25 of Central Excise Rules): Though there is provision under Central Excise Rules to confiscate unaccounted manufactured goods, it is generally applied only in cases of goods on which duty is payable but not paid. Since the duty in jewellery sector is applicable only at the finished goods stage, if stock of finished goods is sufficiently kept there should not be any fear of confiscation. Even in cases where such un-accounting is found, it is not that the goods will be seized immediately, instead there is a legal process wherein a notice has to be issued, opportunity to explain both in writing and in person should be given, the order has to be passed and subsequently if the assessee is not happy he has all the right to go for appeal.
16. If any irregularity is found the officers may carry out forced closure of shop/place of business: When the officers are not permitted to visit the premises, the said question does not arise. Even in case they come with clear intelligence they have right only to carryout investigation and collect evidences and they do not have any power to close the operation of the assessee.
17. Imprisonment of 3 years on evasion of duty up to 50 lacs and 7 years beyond that (section 9): Though the prosecution provisions exist in the statute, it is not permitted to be launched in routine manner so easily. It is launched only if the duty amount is more than one crore with the permission of Principal Chief/Chief Commissioner as per the guidelines given Circular No. 1009/16/2015-CX., dated 23- 10-2015. Hence, bonafide assessee need not fear.
Conclusion: In the opinion of the paper-writer the apprehension is unwarranted as numerous small manufacturers are complying with the provisions of law without facing any the apprehensions (except in one of cases due to ignorance and lack of knowledge of the assessee) that too without any relaxation in procedures. Further more since it is applicable only to manufacturers either on own or through others having clearances more than 6 crores most of the business man in the industry would be out of the clutches of Central Excise especially trading is not covered within Central Excise. For any comments, you may write to paper writers at firstname.lastname@example.org or email@example.com
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