AMENDMENTS IN CENTRAL EXCISE ACT – FINANCE BILL, 2011

[Mr. M. GOVINDARAJAN]

                         The Finance Bill, 2011 has brought amendments in the Central Excise Act, 1994.  It brings reforms in recovery procedure and brings rationale in penal procedures.  Sec. 11A of the Central Excise Act, 1994 has been substituted with the new section.   Likewise Sec. 11AA and 11AB are substituted by new section 11AA for the levy of interest in delayed payment of duty.  Sec. 11AC has been substituted by the new Section 11AC for imposing penalty for short levy or non levy of duty in certain cases. 

                        The dues of Central Excise have not been declared as first charge in the Act till date.  The High Court/Supreme Courtin many cases rejected the claim of Revenue in claiming the due of excise duty in preference by saying that there is no specific mention in the Central Excise Act that the due of central excise duty liability is the first charge.  Considering the same Sec. 11E has been inserted to rectify the same.  Additional powers are given to the Departmental Officers in search and seizure by the insertion of new Section 12F.   The CBEC, from time to time issue orders or instructions or directions fixing such monetary limits, as it may deem fit for the purposes of filing of appeal, application, revision or reference by the Central Excise Officer.  The same has been made effect by inserting new Section 35R.  In this article the amendments brought in Central Excise Act by Finance Bill, 2011 is discussed in detail.

AMENDMENT OF RULE 4A:

                        Sec. 4A deals with the valuation of Central Excisable goods with reference to retail price.   Sub Section (1) provides that the Central Government may, by notification, in the Official Gazette specify any goods in relation to which it is required, under the provisions of Standards of Weights and Measures Act, 1976 or the rules made there under or any other law for the time being in force to declare the package thereof retail sale price of such goods to which the provisions of sub-section (2) apply.  Now the Standards of Weights and Measures Act, 1976 has been repealed and the ‘Legal Metrology Act, 2009’ has been enacted.  Therefore it is highly necessary to amend Sec. 4A suitably.   As such the Section 59 of the Finance Bill substite the words and figures ‘Legal Metrology Act, 2009’ for the words and figures ‘Standards of Weights and Measures Act,1976’.

SUBSTITUTION OF NEW SECTION FOR SECTION 11A:

                        Sec.60 of the Finance Bill, 2011 sought to substitute a new section for Sec. 11A.  The new Section 11A deals with the recovery of duties not levied or not paid or short levied or short paid or erroneously refunded in two circumstances as detailed below:

• Other than the reason of fraud or collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty;
• For the reason of fraud or collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty.

In the former case the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which been so short levied or short paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.   The Central Excise Officer shall, after allowing the concerned person of being heard, and after considering the representation, if any made by such person, determine the amount of duty of excise due from such person not being in excess of the amount specified in the notice.  The Central Excise Officer shall determine the amount of duty of excise within six months from the date of notice.

 Before service of notice the person chargeable with duty may on the basis of his own ascertainment of such duty or duty ascertained by the Central Excise Officer the amount of duty along with interest payable thereon under Sec. 11AA and he has to inform the Central Excise Officer of such payment in writing.   On receipt of the said intimation the Central Excise Officer shall not serve any notice in respect of the duty so paid or any penalty leviable under the provisions of this Act or the Rules made there under.   In case if there is a fall short of the amount actually payable, the Central Excise Officer shall proceed to issue the notice in respect of such amount which falls short of the amount actually payable and the period of one year shall be computed from the date of receipt of information.

                        In the latter case the Central Excise Officer shall, within five years from the relevant date, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under Section 11AA and a penalty equivalent to the duty specified in the notice.  The Central Excise Officer shall, after allowing the concerned person an opportunity of being heard, and after considering the representation, if any, made by such person, determine the amount duty of excise from such person not being in excess of the amount specified in the notice.  The Central Excise Officer shall determine the amount of duty of excise within one year from the date of notice.

The equal penalty is reducible in the following cases:

• Where during the course of any audit, investigation or verification, it is found that any duty has not been levied or paid or short levied or short paid or erroneously refunded but the details relating to transactions are available in the specified record, then in such cases, the penalty equivalent to 50% of such duty may be imposed;
• Any person chargeable with duty, before service of show cause notice on him, pay the duty in full or in part, as may be accepted by him along with interest payable thereon under Section 11AA and penalty equal to 1% of such duty per month to be calculated from the month following the month in which such duty was payable, but not exceeding a maximum of 25% of the duty and inform the Central Excise Officer of such payment in writing.  In such cases the show cause notice will not be issued in the amount of duty, interest and penalty has been fully paid.   If there is any short fall the same may be recovered within one year from the date of such information of payment.

In computing the period of one year or five years the period during which there was any stay by an order of the Court or Tribunal in respect of payment of such duty shall be excluded. 

                        Sub Rule 9 provides that where any appellate authority or tribunal or court concludes that the notice issued is not sustainable for the reasons that the charges of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of this Act or the rules made there under with intent to evade payment of duty has not been established against the person to whom the notice was issued, the Central Excise Officer shall determine the duty of excise payable by such person for the period of one year, deeming as if the notice were issued under the first category.   This is the new provision inserted.  The Revenue will be gainful by this provision.

                        Sub-section (12) provides that where the appellate authority modifies the amount of duty of excise determined by the Central Excise Officer, then the amount of penalties and interest shall stand modified taking into account the amount of duty of excise so modified.   Sub-section (13) provides that if the amount is more than the determined amount, the time within which the interest or penalty is payable shall be counted from the date of the order of the appellate authority in respect of such increased amount.    Sub-section (14) provides that the person liable to pay the said duty of excise shall pay the amount so determined along with the interest due on such amount whether or not the amount of interest is specified separately.          

                        The ‘relevant date’ is defined by explanation give to this section as-

• in the case of excisable goods on which duty of excise has not been levied or paid or has been short levied or short paid and no periodical return as required by the provisions of this Act has been filed, the last date on which such return is required to be filed under this Act and the rules made there under;
• in the case of excisable goods on which duty of excise has not been levied or paid or has been short levied or short paid and the return has been filed on due date, the date on which such return has been filed;
• in any other case, the date on which duty of excise is required to be paid under this Act or the rules made there under;
• in a case where duty of excise is provisionally assessed under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof;
• in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.

INTEREST ON DELAYED PAYMENT OF DUTY:

                        Newly inserted Section 11AA, inserted vide Sec.61of Finance Bill, 2011, deals with the interest on delayed payment of duty.   Sec. 11AA (1) provides that notwithstanding anything contained in any judgment, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made there under the person, who is liable to pay duty, shall, in addition to the duty, be liable to pay interest at the rate specified in sub section (2) whether such payment is made voluntarily or after determination of the amount of duty under Sec. 11A.

                        Sec. 11AA (2) prescribes the rate of interest.   The rate of interest is not below 10% and not exceeding 36% per annum as the Central Government may, by notification in the Official Gazette, fix, shall be paid in terms of Sec. 11A after the due date by the person liable to pay duty and such interest shall be calculated from the date on which such duty becomes due up to the date of actual payment of the amount due.   The Central Government has prescribed 18% as interest rate for the financial year 2011 – 12.

                        Sec. 11AA (3) provides that no interest shall be payable where-

• the duty becomes payable consequent to the issue of an order, instruction or direction by the Board under Sec. 37B; and
• such amount of duty is voluntarily paid in full, within forty five days from the date of issue of such order, instruction or direction, without reserving any right to appeal against the said payment at any subsequent stage of such payment.

PENALTY FOR SHORT LEVY OR NON LEVY OF DUTY IN CERTAIN CASES:

                        Sec. 62 of the Finance Bill substitutes the new Section 11AC in the Central Excise Act.  The amount of penalty for non levy or short levy or non payment or short payment or erroneous refund shall be as follows:

a)      where any duty of excise has not been levied or paid or short levied or short paid or erroneously refunded, by reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of this Act or the rules made there under with intent to evade payment of duty the person who is liable to pay duty under Sec. 11A (10) shall also be liable to pay a penalty equal to the duty so determined;

b)      where details of transactions available in the specified records, reveal that any duty of excise has not been levied or paid or short levied or short paid or erroneously refunded the person who is liable to pay duty shall also be liable to pay penalty equal to 50% of the duty so determined;

c)      where any duty as determined under Sec. 11A (10) and the interest payable thereon under Section 11AA  in respect of transactions referred to in (b) is paid within 30 days of the date of communication or order of the Central Excise Officer who has determined such duty, the amount of penalty is 25% of the duty so determined;

d)     where the authority modifies the amount of duty then the amount penalties and interest payable shall stand modified accordingly and after taking into account the amount of duty of excise so modified, the person who is liable to pay duty as determined shall also be liable to pay such amount of penalty or interest so modified.

Where the amount as modified by the appellate authority is more than the amount determined by the Central Excise Officer, the time within which the interest or penalty is payable under this Act shall be counted from the date of the order of the appellate authority in respect of such increased amount.

LIABILITY OF DUTY AS FIRST CHARGE:   

                        Sec. 63 of Finance Bill inserted the new Section 11E which provides that any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act or the rules made there under shall, save as otherwise provided in-

• Section 529A of the Companies Act,1956;
• The Recovery of Debts Due to Banks and the Financial Institutions Act, 1993; and
• The Securitization and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002,

 Be the first charge on the property of the assessee or the person, as the case may be.

POWER OF SEARCH AND SEIZURE:

                        Sec. 65 of the Finance Bill inserted a new Section 12F giving power of search and seizure.   According to this Section where the Joint Commissioner or Additional Commissioner has reasons to believe that any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorize in writing any Central Excise Officer to search and seize or may himself search and seize such documents or books or things.  The provisions of Code of Criminal Procedure, 1973 relating to search and seizure shall so far as may be, apply to search  and seizure under this section as they apply to search and seizure under that Code.

APPEAL NOT TO BE FILED IN CERTAIN CASES:

                        Sec. 66 of the Finance Bill, 2011 inserted the new Section 35R.  The provisions of Sec. 35R are as follows:

(1)   The Central Board of Excise and Customs may, from time to time, issue orders or instructions or directions fixing such monetary limits, as it may deem fit, for the purposes of regulating the filing of appeal, application, revision or reference by the Central Excise Officer under the provisions of this Chapter.

(2)   Where, in pursuance of the orders or instructions or directions, issued under (1) the Central Excise Officer has not filed an appeal, application, revision or reference against any decision or order passed under the provisions of this Act, it shall not preclude such Officer from filing appeal, revision or reference in any other case involving the same issue or similar issues or questions of law;

(3)   Notwithstanding the fact that no appeal, application, revision or reference has been filed by the Central Excise Officer pursuant to the orders or instructions or directions issued under (1), no person, being a party in appeal, application, revision or reference shall contend that the Central Excise Officer has acquiesced in the decision on the disputed issue by not filing appeal, application, revision or reference;

(4)   The Appellate Tribunal or Court hearing such appeal, application, revision or reference shall have regard to the circumstances under which appeal, application, revision or reference was not filed by the Central Excise Officer in pursuance of the orders or instructions or directions issued under (1);

(5)   Every order or instruction or direction issued by the Central Board of Excise and Customs on or after 20.10.2010, but before the date on which the Finance Bill, 2011 receives the assent of the President, fixing monetary limits of filing of appeal, application, revision or reference shall be deemed to have been issued under (1) and (2), (3) and (4) shall apply accordingly.