Answers to Unsolved Practical Examples in ‘Indirect Taxes'

Answer to question 

Question - The value of excisable goods viz. Iron and Steel articles manufactured by M/s. Alpha Ltd., was Rs. 120 lakhs during the financial year 2003-04. The goods attract 16% ad valorem duty. Determine the excise duty liability when the assessee opts for ‘CENVAT’ and ‘opts for not to avail CENVAT’ under SSI exemption notifications respectively. (ICWA Inter - December 1997). (Question adopted for current year)

Answer - If the assessee does not avail Cenvat, duty will payable will be Rs 3.2 lakhs. [Nil for first 100 lakhs and Rs 3.20 lakhs for subsequent Rs 20 lakhs]. If assessee avails Cenvat credit, duty payable will be Rs 11.8 lakhs (Rs 9.60 lakhs on first Rs 100 lakhs and Rs 3.20 lakhs on balance Rs 20 lakhs)

Question - ABC and Co. are manufacturing the products specified below from excise duty paid high density polyethylene granules. Part of the goods are captively consumed and other part of the goods cleared for home consumption in India and for export to Bhutan and United Kingdom. The effective rate of duty, and the value of clearances during the preceding year 2004-05, and the current assessment period 2005-06 are as follows -

1. Rate of duty - Product ‘A’ - 25%. Product ‘B’ - 25%. Product ‘C’ (waste & scrap) - Exempt from duty.

2. Value of clearances in 2004-05 - Product ‘A’ - (a) Clearance for home consumption - Rs 130 lakhs (b) For captive consumption in the manufacture of excisable goods - Rs 135 lakhs (c) Exports to Bhutan - Rs 35 lakhs (d) Exports to UK under bond - Rs 100 lakhs.

Product ‘B’ - (a) Clearance for home consumption - Rs 80 lakhs (b) For captive consumption in the manufacture of excisable goods - Nil (c) Exports to Bhutan - Rs 50 lakhs (d) Exports to UK under bond - Rs 200 lakhs.

Product ‘C’ - (a) Clearance for home consumption - Rs 40 lakhs (b) For captive consumption in the manufacture of excisable goods - Rs 20 lakhs (c) Exports to Bhutan - Nil (d) Exports to UK - Nil

3. Value of clearances during current year i.e. 2005-06 -

Product ‘A’ - (a) Clearance for home consumption - Rs 50 lakhs (b) For captive consumption in the manufacture of excisable goods - Rs 40 lakhs (c) Exports to Bhutan - Nil (d) Exports to UK under bond - Rs 50 lakhs.

Product ‘B’ - (a) Clearance for home consumption - Rs 80 lakhs (b) For captive consumption in the manufacture of excisable goods - Nil (c) Exports to Bhutan - Rs 50 lakhs (d) Exports to UK under bond - Rs 100 lakhs.

Product ‘C’ - (a) Clearance for home consumption - Rs 50 lakhs (b) For captive consumption in the manufacture of excisable goods - Nil (c) Exports to Bhutan - Nil (d) Exports to UK under bond - Nil

Advise the manufacturers as to whether they are entitled to small scale exemption and the amount of excise duty payable for their clearances during 1999-2000, if the assessee intends to avail Cenvat credit. [Question slightly modified for current year]. (ICSI - Final- June, 1997)

Answer - Turnover in 2004-05 for purpose of considering SSI exemption limit is as follows –

Product A – Rs 165 lakhs. [130 + 35]

Product B - Rs 130 lakhs [80+50]

Product C – Rs 20 lakhs.

Note that if final product is dutiable, the goods used for captive consumption are not liable to duty. Hence, turnover of product C of Rs 20 lakhs for captive consumption is not includible.