Central Excise on Jewellery : Whether fears are real?

By CA Rajesh Kumar T R By CA Ashish Chaudhary

Background 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 apprehensions 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:

fraud or

collusion or

any wilful mis-statement or

suppression of facts, or

contravention of any of the provisions of this Act or of the rules made

thereunder with intent to evade payment of duty

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: Thereis 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 lacsand 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.

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 rajesh@hiregange.com or ashish@hiregange.com