In and Out of Excise Duty!

4 Mar 2021  Read 715 Views

While seeing the news about petrol and diesel's skyrocketing prices, you may have heard about excise duty. Did you know that it still exists even after 3.5 years of the new GST regime? After the implementation of GST, Excise Duty has been abolished on most items. But there are a few products on which excise duty is still levied, which is liquor and petroleum products.

Let's take a look on this old tax and know why it was replaced by GST after being implemented for so long. 

What is Excise Duty?

Excise Duty is a type of indirect tax that is levied by the Central Government on the production, sale and licence of goods. (FYI, Indirect Tax is a type of tax that has to be paid by the seller, but its burden is shifted on to the consumers.) 

Every tax which is to be levied requires a law. Similarly, excise duty is governed by 2 Acts: Central Excise Act 1944 and Central Excise Tariff Act 1985. The Central Board of Indirect Taxes and Customs (CBIC) governs its collection and various rates.

Types of Excise Duty

If you thought that there was only one type of excise duty, then you were wrong. There are various types of excise duties:

  • Basic Excise Duty: Also known as Central Value Added Tax or CENVAT, basic excise duty is levied under Section 3 of Central Excise and Salt Act, 1944 on all products, other than salt, which are manufactured in India. 
  • Special Excise Duty: In addition to basic excise duty, special excise duty is levied on all goods mentioned under Second Schedule to Central Excise Tariff Act, 1985.
  • Additional Excise Duty: An additional excise duty is levied on goods of special importance, besides basic excise duty. It was implemented as an alternative to charging sales tax. The revenue from it is shared between state and central government on the basis of a specified percentage.
  • Countervailing Duty: It was the type of excise duty that was levied on the import of goods. 
  • Education Cess: Besides all these duties, education cess is levied on all goods. It is computed on the basis of total excise duties chargeable.

Besides them, there are several goods on which additional duty was charged, such as Mineral Products, Medical Items, electronic products, tobacco. Imagine the plight of accountants while recording and verifying such a huge variety of duties! But thanks to GST, these varied duties are removed on many commodities.

Who is Required to Pay Excise Duty?

Excise Duty has to be paid by the manufacturer of goods. So following people are required to pay it: 

  • The individual or entity that manufactured or produced the goods.
  • The individual or entity that was responsible for the manufacture of goods by way of hiring labour.
  • The individual or entity responsible for the manufacture of goods by other parties.

When to Pay It?

Excise Duty is to be paid on the removal of goods. The concerned people or entities have to pay it on the manufacture of goods. According to the rules, excise duty should be paid by 5th of next month from the date of removal of goods from factory for sale. If payment is made through net banking, then the date is the 6th of next month. This clause is applicable for all months except for March, where payment should be done before 31st March.

How to Pay It?

The first and foremost thing to remember is the process of paying the excise duty.

The Central Board of Indirect Taxes and Customs has made it mandatory to pay excise duty online via net banking for all taxpayers. An online payment gateway known as Electronic Accounting System in Excise and Service Tax (EASIEST), was launched in 2017 by CBIC to facilitate online payment of excise duty.

What Happens in the case of Default?

In case of Default of payment of excise duty, the defaulting taxpayer is levied a fine extending up to Rs. 50 Lakhs and may face imprisonment up to 7 years. In the case of fraud or suppression of facts, the penalty equals 50% of the duty determined thereon. Besides them, there are various penalties based on various offences, which may extend up to Rs. 1 Lakh individually.

How GST is better as compared to Excise Duty?

You might be wondering why the government implemented GST rather than following the conventional system of Excise Duty. Here are some key points which make GST a better tax than Excise Duty.

 

GST

Excise Duty

Tax Base

It is a destination-based tax charged on every stage, from manufacturing till the sale of goods. 

Excise Duty was levied only on manufacture of goods.

Tax Rates

It has various slabs like 0%, 5%, 12%, 18% and 28% so that essential supplies can be made tax-exempt, besides collecting higher tax on luxuries.

It varies based on different types of excise duties charged on different products.

Invoice Matching

Input Tax Credit can be availed on the basis of invoice number matching. It helped to maintain control.

The taxpayer can claim Input Tax Credit based on self-assessed returns.

Input Tax Credit

The IGST Credit can be adjusted from SGST and CGST.

The adjustment under excise duty was not available.

Returns

Annual Return is to be filed before September 30.

Annual Return is to be filed before April 30.

Even when GST has proved to be better, excise duty is charged on petroleum to increase the revenue of the government. You would be surprised to know that excise duty is 100% of the price of crude oil. As per the GST Act, the maximum rate of GST chargeable is 40%. If 40% of GST is levied on petroleum, the price of petrol and diesel will be nearly Rs 50, half of the current price!! 

That is why the government has not done so to increase revenue and discourage excess consumption. Do let us know your views in the comments.

Conclusion

Excise Duty is an indirect tax that is now replaced by GST in many commodities. There are different types of excise duties like basic, additional, and specific excise duties. Besides them, there are additional duties applicable for different goods. Education cess is also levied. 

The duty is to be paid by the manufacturer of goods through net banking on the web portal. A penalty is levied in case of Default, fraud, and other offences.

Although Excise Duty is a conventional tax with its implementation in 1944, GST has proved to be a better alternative in many aspects.

About the Author: Prasuk Jain | 45 Post(s)

Prasuk is an inquisitive and tenacious person with a mix of enthusiasm and a positive attitude, currently pursuing CA. 

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