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CBIC Invites Stakeholders’ Feedback on the Draft Central Excise Bill 2024

Introduction

The Central Board of Indirect Taxes and Customs (‘CBIC’), operating under the Department of Revenue, Ministry of Finance, introduced the draft Central Excise Bill, 2024 (‘Bill’), aiming to modernize and streamline the excise duty framework in India. This Bill is set to replace the current Central Excise Act, 1944 (‘Excise Act’). As a part of the pre-legislative process, the CBIC has invited suggestions from the stakeholders by 26.06.2024 on the proposed reforms. This update highlights and summarizes the key changes introduced in the proposed Bill.

Background

The Excise Act has governed the imposition of excise duties on goods manufactured in India for the last eighty years. Excise duty is an indirect tax collected by retailers or intermediaries from customers at the point of sale. It is levied when goods are transferred from manufacturing units to warehouses. Two primary acts govern this tax: the Excise Act, which handles its levy and collection, and the Central Excise Tariff Act, 1985 (‘Tariff Act’), which classifies goods and determines duty rates.

With the advent of the Central Goods and Services Tax Act in 2017 (‘CGST Act’), most goods moved under the GST regime. Still, excise duty continues to apply to select products like tobacco products and five fuels, i.e., crude oil, gasoline, diesel, natural gas and air turbine fuel. The primary objective of this reform is to eliminate outdated and redundant provisions following the introduction of the CGST Act, paving the way for a more efficient and modern excise duty framework. The new Bill comprises 12 chapters, 114 sections and 2 schedules, promising a more streamlined and effective system.

Key Changes

A concise summary of the key changes in the proposed Bill is as follows:

  1. Exclusion of Special Economic Zone (‘SEZ’) exemption – Under the proposed Bill, there is a significant departure from some provisions of the Excise Act, particularly concerning SEZs. As per s. 3 of the Excise Act,[i] goods produced or manufactured in SEZs were exempt from excise duty. The proposed Bill does not provide any such blanket exemption and it has been explicitly provided in the explanation under s. 10.[ii] The future of tax benefits and incentives, including excise duty exemptions granted to SEZs, remains uncertain under the new Bill. Whether these benefits will continue through separate notifications or alternative mechanisms depends on forthcoming government decisions.

  2. Revised time limit for demand and recovery of duty – The proposed Bill extends the time limit for the demand and recovery of excise duty on the part of tax authorities. According to s. 32(1)(a) of the Bill,[iii] a Central Excise Officer can serve a notice up to 3 years from the relevant date if the duty has not been levied, paid, short-levied, short-paid, erroneously refunded or if the Central Excise Duty Credit has been wrongly availed or utilized. Under the current Excise Act, this time limit is set at 2 years. Additionally, the Bill does not distinguish between cases based on malafide and bonafide reasons. This means that all cases, regardless of intent, are subject to the extended 3-year period for notice issuance. Additionally, the time frame for an assessee to claim a refund has also been reduced from 2 years to 1 year. This change is intended to streamline the recovery process and ensure a more consistent approach to handling discrepancies in duty payments.

  3. Reduction in interest accrual period for delayed refunds- A significant change in the proposed Bill offers major relief to businesses regarding the interest on delayed refunds. Under s. 26 of the Bill,[iv] interest on delayed refunds will start accruing after 60 days from the date of the refund application. This is an improvement over the current provision under the Excise Act, which sets this period at 90 days. Further, the Bill clarifies that if a refund is not processed within 60 days from the application receipt date, the applicant will be entitled to interest at a rate specified by the Central Government, not exceeding 6% per annum. In contrast, the Excise Act mandates interest accrual after 90 days at a rate between 5%- 30% per annum. This reduction in the interest accrual period aims to expedite the refund process and provide financial relief to businesses.

  4. Introduction of Central Excise Duty Credit- The proposed Bill replaces the existing CENVAT credit system with a new framework for Central Excise Duty Credit, introducing detailed conditions and restrictions for its utilization. S. 17 of the new Bill entitles manufacturers to claim credit for excise duties paid on inputs, excluding motor spirit and high-speed diesel, used in the production of final products.[v] This credit can be utilized to pay excise duties on final products, subject to prescribed limitations. Additionally, s. 18 provides for transitional credit,[vi] i.e., it ensures the transition of unutilized CENVAT credits from the old law, allowing them to be used under the new law. This pragmatic approach ensures continuity and minimizes disruption for businesses. The shift towards a more structured and efficient credit system reflects a significant policy update aimed at enhancing operational efficiency and compliance.

  5. Clarity on the concept of related person- The proposed Bill introduces the concept of ‘related persons’ which is inspired by the wording and intent of the Customs and GST laws. This has been done to modernize and align the excise framework with other indirect tax systems. S. 13 of the Bill defines ‘related persons’ to include parties such as officers or directors of each other’s businesses, legally recognized partners, employer and employee, entities with significant shared ownership or control (25% or more voting stock) and members of the same family.[vii] This change replaces outdated provisions, incorporating relevant regulations within the proposed Bill that aim to create a more cohesive and unified indirect tax system.

  6. Furnishing of annual returns- The Bill introduces a specific provision requiring assessees under the Excise Act to furnish annual returns electronically within a prescribed timeframe.[viii] This aligns with GST laws and includes provisions for exemptions from filing annual returns under certain conditions as notified by the Central Government. The focus is on simplifying compliance procedures and ensuring timely submission of returns, fostering a cohesive indirect tax system aligning with GST.

  7. Proposed Reductions in Excise Duty for Tobacco Products- The Bill proposes significant reductions in excise duty rates for various tobacco products compared to the current rates under the Excise Act. Below is a summary of the key changes:

a)  Non-filter cigarettes ≤ 65 mm: Rate lowered from Rs. 1280 to Rs. 200 per thousand.

b) Non-filter cigarettes 65-70 mm: Rate reduced from Rs. 2335 to Rs. 250 per thousand.

c) Filter cigarettes ≤ 65 mm: Duty decreased from Rs. 1280 to Rs. 440 per thousand.

d) Filter cigarettes 65-70 mm: Rate lowered from Rs. 1740 to Rs. 440 per thousand.

e) Filter cigarettes 70-75 mm: Duty reduced from Rs. 2335 to Rs. 545 per thousand.

f) Other cigarettes: Duty cut from Rs. 3375 to Rs. 735 per thousand.

g) Tobacco substitutes: Duty lowered from Rs. 3375 to Rs. 600 per thousand.

h) Hukkah tobacco: Rate reduced from 60% to 25% per kg.

i) Smoking mixtures for pipes and cigarettes: Duty reduced from 360% to 60% per kg.

j) Non-paper rolled biris: Duty lowered from Rs. 12 to Rs. 1 per thousand.

k) Other biris: Rate reduced from Rs. 80 to Rs. 2 per thousand.

l) Chewing tobacco, jarda-scented tobacco, snuff, and tobacco extracts: Duty reduced uniformly from 60% to 25% per kg.

These changes aim to lower excise duty rates, reduce the tax burden on these products, and potentially affect their pricing and market presence.

Our Analysis

The government's initiative to overhaul the entire excise duty framework to ensure compliance with other laws and enhance operational efficiency is commendable. The proposed Bill aims to reduce the compliance burden and establish a comprehensive legal framework better suited to the current economic landscape. Since the Bill proposes to implement the whole framework in a phased manner, it will ensure a smooth and efficient transition to the new legal framework, benefiting both businesses and the tax administration by providing adequate time for adaptation. However, detailed guidelines by the CBIC would be required to implement the Bill. While the Bill represents a positive step towards modernization, it is crucial for assessees to take this opportunity to provide practical suggestions to the CBIC by 26.06.2024. It is also interesting to note that the timing of the release of the draft and the comment deadline suggest that the Bill may be introduced in the upcoming budget session of the parliament.






End Notes

[i] Central Excise Act 1944, s. 3

[ii] Central Excise Bill 2024, s. 10

[iii] Central Excise Bill 2024, s. 32(1)(a)

[iv] Central Excise Bill 2024, s. 26

[v] Central Excise Bill 2024, s. 17

[vi] Central Excise Bill 2024, s. 18

[vii] Central Excise Bill 2024, s. 13

[viii] Central Excise Bill 2024, s. 21







Authored by Muskaan Jain, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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