Chapter-3

ASSESSMENT, CLASSIFICATION, VALUATION, PROVISIONAL ASSESSMENT,

MANNER OF DUTY PAYMENT, ACCOUNT CURRENT, SCRUTINY

Part-I

Assessment

1. Assessment Defined

1.1 The expressions ‘assessment’ and ‘assessee’ have been defined in the Central
Excise (No.2) Rules, 2001 (hereinafter referred to as the said Rules). “Assessment” includes
self-assessment of duty made by the assessee and provisional assessment under rule 7 of
the said Rules. “Assessee” means any person who is liable for payment of duty assessed
or a producer or manufacturer of excisable goods or a registered person of a private
warehouse in which excisable goods are stored and includes an authorized agent of
such person.

1.2 Normally, duty is payable on removal of goods. Rule 4 of the said Rules provides
that every person who produces or manufactures any excisable goods, or who stores
such goods in a warehouse, shall pay the duty leviable on such goods in the manner
provided in rule 8 of the said Rules or under any other law. No excisable goods, on which
any duty is payable, shall be removed without payment of duty from any place, where
they are produced or manufactured, or from a warehouse, unless otherwise provided.

1.3 An exception has been provided in the said rule 4 in respect of goods falling
under Chapter 62 of the First Schedule to Central Excise Tariff Act, 1985 (5 of 1986)
produced or manufactured by a job worker. Such goods may be removed without
payment of duty leviable thereon and the duty of excise leviable on such goods shall be
paid by person who gets such goods, produced or manufactured on his account on job
work as if such goods have been produced or manufactured by him, on the date of
removal of such goods from his premises registered under rule 9. The payment of such
duty may be secured by bond or otherwise. However, where such person has
authorised the job worker to pay the duty leviable on such goods, the job worker shall
pay such duty on the date of removal of such goods from his registered premises.

1.4 There is also an exception with respect to duty payment on molasses. Where
molasses are produced in a khandsari sugar factory, the person who procures such
molasses, whether directly from such factory or otherwise, for use in the manufacture of
any commodity, whether or not excisable, shall pay the duty leviable on such molasses,
in the same manner as if such molasses have been produced by the procurer.

1.5 For the purposes of the said rule 4, excisable goods manufactured in a factory
and utilised, as such or after subjecting to any process, for the manufacture of any other
commodity, in such factory shall be deemed to have been removed from such factory
immediately before such utilisation.
2. Major ingredients of assessment

2.1 Before each removal, whether outside the factory of manufacture or production
or for captive consumption, duty has to be assessed on the excisable goods. The main
ingredients of assessment are:

(1) Classification and rate of duty: For determining the rate of duty, classification is
prerequisite. Classification means the appropriate classification code which is
applicable to the excisable goods in question under the First Schedule to Central
Excise Tariff Act, 1985 (5 of 1986). There are Section Notes and Chapter Notes, in
the Tariff which are helpful in determining the appropriate classification. In case
of difficulties, there are “Interpretative Rules” in the said Act. There is large
number of judicial pronouncements concerning classification, which have to be
applied in relevant case. The said Tariff also prescribes the ‘Tariff Rate of duty’.
Some commodities may be subject to ‘special duty of excise’ prescribed under
the Second Schedule to Central Excise Tariff Act, 1985. Thus, a reference to the
Second Schedule to Central Excise Tariff Act, 1985 should also be made to see if
the goods are covered there. However, duty chargeable is the ‘effective rate’.
Thus, if any exemption is available to any commodity, the same may be
ascertained and the applicable rate of duty should be determined. If such
exemption is subject to certain conditions, it shall be necessary to follow those
conditions. Certain goods may also be subject to duty under some other Acts
such as Additional Duty of Excise (Goods of Special Importance) Act, 1957 or
certain Cess. The manufacturer or owner of goods in a warehouse is liable to pay
all such applicable duties on removal of excisable goods.

(ii) Valuation: Where rate of duty is dependent on value of the goods (ad
valorem duty), value has to be determined in accordance with the provisions of
Central Excise Act, 1944, as follows:

(i) Value under section 4 including transaction value under this section
(ii) Value based on retail sale price under section 4A.
(iii) Tariff value fixed under Section 3.

(iii) Quantity Removed: Where duty is on value, the total value is determined by
multiplying unit value with the total quantity. The unit quantity of goods are also
required in cases where duty is charged at specific rate.

3. Self Assessment

3.1 As per rule 6 of the said Rules a Central Excise assessee is himself (self-assessment)
required to determine duty liability at the time of removal of excisable goods and
discharge the same. In other words, the assessee should apply correct classification and
value (where duty is ad valorem) on the quantities being removed by him and indicate
the same in the invoice (except assessee manufacturing cigarettes, in which case the
Superintendent or Inspector of Central Excise has to assess the duty payable before
removal by the assessee).

3.2 Assessee is also required to assess his return for a month and submit to the Range
Office having jurisdiction over his factory within ten days of the succeeding month. They
are also requited to submit ‘CENVAT Return’ for a month within five days of the
succeeding month. A manufacturer availing exemption notification for Small Scale
Industries is permitted to file his return of quarterly basis. Their returns have to be filed in
the following frequency: -

Return for the quarter (for months) By 20th day of the month
First quarter – April, May, June July
Second quarter – July, August, September October
Third quarter –October, November, December January
Fourth quarter – January, February, March April

4. Date for determination of rate of duty and tariff value

4.1 Date for determination of rate of duty and tariff value is prescribed in rule 5 of the
Central Excise (No.2) Rules, 2001. The provision is, as follows:

(1) The rate of duty or tariff value applicable to any excisable goods, other
than khandsari molasses, shall be the rate or value in force on the date
when such goods are removed from a factory or a warehouse, as the case
may be.

(2) The rate of duty in the case of khandsari molasses, shall be the rate in force
on the date of receipt of such molasses in the factory of the procurer of
such molasses.

4.2 If any excisable goods are used within the factory, ‘the date of removal of such
goods’ shall mean the date on which the goods are issued for such use.

4.3 The rate of duty in the case of goods falling under Chapter 62 of the First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), produced or manufactured on
job work, shall be the rate in force on the date of removal of such goods by the person
referred to in sub-rule (3) of rule 4 from his premises registered under rule 9.

Part-II

CLASSIFICATION

1. Introduction

1.1 The Central Excise duty is chargeable at the rates specified in the schedule to
the Central Excise Tariff Act, 1985. The said schedule is divided into 20 sections and
96 Chapters. There are no Chapters with numbers 1,6,10,12 and 77. As such there
are effectively 91 Chapters. Each Chapter is further divided into headings and sub-
headings. In order to determine the applicable rate of duty in respect of a particular
item, the positioning of that item under a particular head or sub-head is essential.
The positioning of an item in the appropriate heading/sub-heading is called
classification. The classification of an item is generally decided in view of how it is
described in commercial parlance. However a deviation from this principle is made
when the trade meaning or commercial nomenclature does not fit into the scheme
of the statute.
2. Interpretative Rules for classification.

2.1 The Central Excise Tariff Act, 1985 incorporates five Rules of interpretation,
which together provide necessary guidelines for classification of various products
under the schedule. As regards the Interpretative Rules, the classification is to be first
tested in the light of Rule 1. Only when it is not possible to resolve the issue by
applying this Rule, recourse is taken to Rules 2,3 & 4 in seriatim. The provision of the
individual Rule is as follows:

(i) Rule 1 This rule provides that section and Chapter titles are only for the
ease of reference and, therefore, do not have any legal
bearing on the classification of goods, which is determined
according to the terms of headings and relevant section or
Chapter notes and according to the other interpretative rules if
such headings or notes do not otherwise require. Thus goods
are to be classified in terms of the heading and relative sections
or Chapter notes without recourse to any interpretative rules. It
is only when the goods cannot be classified on this basis, the
assistance is to be sought from the interpretative rules.

(ii) Rule 2(a) This rule provides classification of an article referred to in a

heading, even if that article is incomplete or unfinished, or is
presented in an unassembled or disassembled form. An
important condition to be satisfied for classification in this
manner is that in its incomplete or unfinished state, the article
has the essential character of the complete of finished article.
Some of the important aspects which are relevant in this regard
are functional aspect, physical aspect and the degree of
completion of the product.

(iii) Rule 2(b) This rule relates to mixture or combination of materials or

substances, and goods consisting of two or more materials or
substances. According to this rule headings in which there is a
reference to a material or substance also apply to that material
or substance mixed or combined with other materials or
substances. This rule does not apply where specific provisions
exist in the headings or the sections or chapter notes excluding
such classification.

(iv) Rule 3 This rule lays down three steps for classifying the goods which
are, prima facie, classifiable under several headings. The
sequential order of the steps contemplated are -
a) most specific description;
b) essential character; and
c) heading which occurs last in numerical order;

This rule applies when goods are prima facie classifiable under
2 or more headings.

In the first step, {Rule 3(a)} the general guidelines are that a
description by name is more specific than the description by
character and a description which identifies the goods clearly
 and precisely is more specific than the one which is less
complete.

The second step [Rule 3 (b)] relates only to mixtures, composite

goods consisting of different materials or components and
goods put up in sets. This rule finds applicability if rule 3(a) does
not help. In all such cases the goods are to be classified as if
they consist of material or components which gives them their
essential character.

When goods cannot be classified with reference to Rules 3(a)

and 3(b), they are to be classified in terms of Rule 3(c)- in the
heading which occurs last in numerical order among those
which equally merit consideration. This is a fall back provision
for resolving the matter when no heading can be regarded as
providing a more specific description than the others and when
it is not possible to identify the material or component which
gives the concerned goods their essential character.

(v) Rule 4 When goods cannot be classified in accordance with rules 1,2,
& 3, then they are to be classified in a heading of a product,
which is most akin to the goods in question. Kinship can, of
course, depend on many factors such as description,
character, purpose etc.

(vi) Rule 5 This rule postulates that the classification of any product under
a sub-heading is to be contemplated after the product
concerned has been properly classified under its proper four
digit Chapter heading. The classification in the sub-heading of
a heading is determined mutatis mutandis in accordance with
the principles applicable to classification in the four digit
headings.

3. Powers of the C.B.E.C. to issue orders of classification of goods.

3.1 Section 37B of the Central Excise Act, 1944 empowers the Central Board of
Excise & Customs to issue orders, instructions and directions, for the purpose of
uniformity in the classification of goods or with respect to the levy of excise duties on
such goods.

Part III

Valuation

I. Value under the Central Excise Act, 1944

1.1 Value of the excisable goods has to be necessarily determined when the rate of
duty is on ad-valorem basis. Accordingly, under the Central Excise Act, 1944 the
following values are relevant for assessment of duty. Transaction value is the most
commonly adopted method.
 (i) Transaction value under Section 4.
(ii) Value determined on basis of maximum Retail Sale Price as per Section
4A.
(iii) Tariff value under Section 3.

2. Transaction Value

2.1 Section 4 of the Central Excise Act, as substituted by section 94 of the Finance
Act, 2000(No.10 of 2000),has come into force from the 1st day of July 2000. This section
contains the provision for determining the Transaction value of the goods for purpose of
assessment of duty.

2.2 For applicability of transaction value in a given case, for assessment purposes,
certain essential requirements should be satisfied. If any one of the said requirement is
not satisfied, then the transaction value shall not be the assessable value and value in
such case has to be arrived at under the valuation rules notified for the purpose. The
essential ingredients of a Transaction value are:

(i) The goods are sold by an assessee for delivery at the time of place of
removal. The term "place of removal" has been defined basically to mean
a factory or a warehouse;
(ii) The assessee and the buyer of the goods are not related; and
(iii) The price is the sole consideration for the sale.

2.3 The definition of "transaction value" needs to be carefully taken note of as there is
fundamental departure from the erstwhile system of valuation that was essentially based
on the concept of ‘Normal Wholesale Price’, even though sales were effected at varying
prices to different buyers or class of buyers from factory gate or Depots etc. had to be
determined.

2.4 The new section 4 essentially seeks to accept different transaction values which
may be charged by the assessee to different customers, for assessment purposes so long
as these are based upon purely commercial consideration where buyer and the seller
have no relationship and price is the sole consideration for sale. Thus, it enables valuation
of goods for excise purposes on value charged as per commercial practices rather than
looking for a notionally determined value.

2.5 Transaction value would include any amount which is paid or payable by the
buyer to or on behalf of the assessee, on account of the factum of sale of goods. In
other words, if, for example, an assessee recovers advertising charges or publicity
charges from his buyers, either at the time of sale of goods or even subsequently, the
assessee cannot claim that such charges are not to be included in the transaction value.
The law recognizes such payment to be part of the transaction value that is assessable
value for those particular transactions. Certain other elements which are included in the
Transaction value are, as follows:

(i) Receipts/recoveries or charges incurred or expenses provided for in

connection with the manufacturing, marketing, selling of the excisable
goods. In other words, whatever elements which enrich the value of the
goods before their marketing and were held by Hon’ble Supreme court to
 be includible in "value" under the erstwhile section 4 would continue to
form part of section 4 value even under new section 4 definition.
(ii) If in addition to the amount charged as price from the buyer, the assessee
recovers any other amount by reason of sale or in connection with sale,
then such amount shall also form part of the transaction value. For
example if assessee splits up his pricing system and charges a price for
the goods and separately charges for packaging or warranty, the
packaging charges will also form part of assessable value as it is a charge
in connection with production and sale of the goods recovered from the
buyer. In this context, it may be clarified that it is immaterial whether the
warranty is optional or mandatory. Since the value can be different for
different transactions, wherever warranty charges are paid or payable to
the assessee, in those transactions warranty charges shall form part of the
assessable value. In those transactions where warranty charges are not
recovered, the question of including warranty charges in transaction
value does not arise.
(iii) Interest for delayed payments are a normal practice in industry. Interest
under a financing arrangement entered between the assessee and the
buyer relating to the purchase of excisable goods shall not be regarded
as part of the assessable value provided that:

(a) the interest charges are clearly distinguished from the price
actually paid or payable for the goods;
(b) the financing arrangement is made in writing; and
(c) where required, assessee demonstrates that such goods are
actually sold at the price declared as the price actually paid or
payable.

(iv) Discount of any type or description given on any normal price payable for
any transaction will not form part of the transaction value for the goods,
e.g. quantity discount for goods purchased or cash discount for the
prompt payment etc. will therefore not form part of the transaction value.
However, it is important to establish that the discount has actually been
passed on to the buyer of the goods. The differential discounts extended
as per commercial considerations on different transactions to unrelated
buyers if extended can not be objected to and different actual prices
paid or payable for various transactions are to be accepted. Where the
assessee claims that the discount of any description for a transaction is
not readily known but would be known only subsequently – as for
example, year end discount – the assessment for such transactions may
be made on a provisional basis. However, the assessee has to disclose the
intention of allowing such discount to the department and make a
request for provisional assessment.
(v) The definition of transaction value mentions that whatever amount is
actually paid or actually payable to the Government or the relevant
statutory authority by way of excise, sale tax and other taxes, such
amount shall be excluded from the transaction value. In other words, if
any excise duty or other tax is paid at a concessional rate for a particular
transaction, the amount of excise duty or tax actually paid at the
concessional rate shall only be allowed to be deducted from price.
(vi) As per commercial practice, the price for the goods charged, normally
includes the cost of packing charges. However, at times separate charge
 may be billed for special packing, as per customer’s requirements.
Whereas in the context of erstwhile section 4 certain disputes often arose
whether certain packing in relation to particular goods is secondary or
primary and whether its value is to be added for assessment purposes,
under the new section 4, such issues are no longer relevant. Any charges
recovered for packing are obviously charges recovered in relation to the
sale of the goods under assessment and will form part of the transaction
value of the goods. In short, it is immaterial whether packing is ordinary or
special. Whatever amount is charged from the buyer for packing and if
not already included by the assessee in the price payable for the goods
will be included while determining the transaction value of the goods.

2.6 Where the assessee includes all their costs incurred in relation to manufacture
and marketing while fixing price payable for the goods and bills and collects an all
inclusive price –as happens in most cases where sales are to independent customers on
commercial consideration - the transaction price will generally be the assessable value.
Nevertheless, there could be situations where the amount charged by an assessee does
not reflect the true intrinsic value of goods marketed and total value split up into various
elements like special packing charges, warranty charges, service charges etc. These
cases would require to be scrutinised carefully to ensure that duty is paid on correct
value. The definition of "transaction value" makes it clear that all the elements of cost
which the assessee incurred till the sale/marketing as aforesaid, continue to be included
in the assessable value even under new section 4.

2.7 The term "place of removal" has been defined in the same manner as was
defined in the erstwhile section 4 prior to its amendment in 1996. If, therefore, the
transaction value is with reference to delivery at the time and place of removal, such
transaction value will be the assessable value.

3. Valuation Rules

3.1 In those cases where any of the three requirements mentioned in para 2 above is
missing, the assessable value shall be determined on the basis of the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2001 notified under Section
4(1)(b) by notification No. 45/2000-CE (NT), dated 30.6.2000.

3.2 Salient features of the new valuation rules are mentioned below:

(i) If the assessee and the buyer are not related persons and the price is also
the sole consideration for sale but only the delivery of goods is made by
the assessee at a place other than the factory/warehouse, then the
assessable value shall be the "transaction value" without the addition of
the cost of transportation from the factory/warehouse upto the place of
delivery. However, exclusion of cost of transportation is allowed only if the
assessee has shown them separately in the invoice and the exclusion is
permissible only for the actual cost so charged from his buyers. If the
assessee has a system of pricing and sale at uniform prices inclusive of
equated freight for delivery at factory gate or elsewhere, no deductions
for freight element will be permissible.
(ii) If the goods are not sold at the factory gate or at the warehouse but they
are transferred by the assessee to his depots or consignment agents or
 any other place for sale, the assessable value in such case for the goods
cleared from factory/warehouse shall be the normal transaction value of
such goods at the depot, etc. at or about the same time on which the
goods as being valued are removed from the factory or warehouse. It
may be pertinent to take note of the definition of "normal transaction
value" as given in the valuation rules. What it basically means is the
transaction value at which the greatest aggregate quantity of goods
from the depots etc. are sold at or about the time of removal of the
goods being from the factory/warehouse. If, however, the identical goods
are not sold by the assessee from depot/consignment agent’s place on
the date of removal from the factory/warehouse, the nearest date on
which such goods were sold or would be sold shall be taken into account.
In either case if there are series of sales at or about the same time, the
normal transaction value for sale to independent buyers will have to be
determined and taken as basis for valuation of goods at the time of
removal from factory/warehouse. It follows from the Valuation Rules that
in such categories of cases also if the price charges is with reference to
delivery at a place other than the depot, etc. then the actual cost of
transportation will not be taken to be a part of the transaction value and
exclusion of such cost allowed on similar lines as discussed earlier, when
sales are effected from factory gate/warehouse.
(iii) As a measure of simplification, it has been decided to value goods which
are captively consumed on cost construction method only as there have
been disputes in adopting values of comparable goods. The assessable
value of captively consumed goods will be taken at 115% of the cost of
manufacture of goods even if identical or comparable goods are
manufactured and sold by the same assessee. The concept of deemed
profit for notional purposes has thus been done away with and a margin
of 15% by way of profit etc. is prescribed in the rule itself for ease of
assessment of goods used for captive consumption.
(iv) In the case where price is not the sole consideration for the sale, but the
other requirements of clause (a) of sub-section (1) of section 4 of the
Central Excise Act are satisfied, the value shall be determined in
accordance with the provisions of rule 6 of the valuation rules. This
provides for adding, to the transaction value the money value of any
additional consideration flowing directly or indirectly from the buyer to the
assessee. Such additional consideration would include the money value
of goods and services provided free or at reduced cost by or on behalf of
the buyer to the assessee. An Explanation has been added in the new rule
only to remove any doubts with respect to its scope.
(v) Where goods are sold through related persons, the transaction value is
not applicable. The definition of related persons includes "inter-connected
undertakings" as defined in the Monopolies and Restrictive Trade Practices
Act, 1969. The definition of inter-connected undertaking in the said Act is
comprehensive and includes two or more under-takings which are inter-
connected with each other in any of a number of ways such as if one
owns or controls the other, or where the undertakings are owned by firm,
or if such firms have one or more common partners, etc. A provision has
been made in the Valuation Rules that even if the assessee and the buyer
are ‘inter-connected undertakings’, the transaction value will be
"rejected" only when they are "related" in the following manner:
 (a) They are relatives.
(b) The buyer is a relative and a distributor of the assessee, or sub-
distributor of such distributor.
(c) They have a direct or indirect interest in the business of each other.

In other cases, they will not be considered related. "Transaction value"

could then form the basis of valuation provided other two conditions,
namely, price is for delivery at the time and place of removal and the
price is the sole consideration for sale are satisfied. If any of the two
aforesaid conditions are not satisfied then, quite obviously, value in such
cases will be determined under the relevant rule.

4. Valuation of Petroleum Products

4.1 The practice being followed is to assess the price administered petroleum
products like motor spirit, HSD, SKO (domestic) and LPG to duty on the ex-storage sale
prices that are fixed by the Oil Coordination Committee (OCC) from time to time. The
assessable value is the same irrespective of whether the administered petroleum
products are sold at the refineries or through the marketing companies.

5. Tariff Value

5.1 For certain items the Government may fix a tariff value as per provisions of
Section 3(3) of the Central Excise Act, 1944. In such cases the assessment of duty shall be
on the basis of the tariff value.

6. Value on basis of Maximum Retail Sales Price

6.1 The value is based on maximum retail sale price in terms of Section 4A of the
Central Excise Act, 1944. This is applicable to notified commodities. The notification
issued in this regard indicates the extent of abatement to be allowed for arriving at the
assessable value for determination of amount of duty.

Part IV

PROVISIONAL ASSESSMENT
I. Introduction

1.1 Provisional assessment is resorted to in the event the duty can not be determined
at the point of clearance of the goods.

2. Guidelines and procedure for provisional assessment:

2.1 Wherever an assessee finds that final assessment is not possible, (in situations
mentioned in rule 7 of the Central Excise (No.2) Rules, 2001 (hereinafter referred to as the
said Rules) he will make a detailed request in writing to the Divisional Deputy/Assistant
Commissioner of Central Excise, indicating:-
(a) Specific grounds/reasons, and the documents or information's, for want of
which final assessment cannot be made.
(b) Period for which provisional assessment is required.
 (c) The rate of duty or the value or both, as the case may be, proposed to be
applied by the assessee, for Provisional Assessment.

(d) Undertakes to appear before the Assistant/Deputy Commissioner of Central

Excise within 7 days or such date fixed by him, and furnish all relevant
information and documents within the time specified by the Assistant/Deputy
Commissioner of Central Excise in his order, so as to enable the proper officer to
finalise the provisional assessment.

2.2 On receipt of the request, the Deputy/Assistant Commissioner of Central Excise

will examine it, if necessary, in consultation with the concerned Range Officer, to
ascertain whether provisional assessment is necessary at all. If the reasons/ grounds are
not sufficient, he may ask the assessee to appear before him on an appointed day and
time, and if he is satisfied that provisional assessment is not necessary, he may pass a
reasoned order rejecting the same and also ordering the rate of duty or the value, to be
applied by the assessee.

2.3 Where the Deputy/Assistant Commissioner of Central Excise is satisfied with the
genuineness of the assessee’s request he will issue a specific order directing provisional
assessment clearly stating:-
(a) The grounds on which Provisional Assessment has been ordered.
(b) The rate and /or value, as the case may be, at which duty has to be
provisionally paid.

(c) The amount of differential duty for which bond is to be executed covering the
period, if any, during which assessee paid duty provisionally under the
deeming provisions, after applying the rate and/ or value specified in (b)
above.

(d) The amount of security or surety as may be fixed by Assistant Commissioner

keeping in view the instructions issued by the Board from time to time.

2.4 The assessee is required to mark the E.R.1 (monthly/quarterly return)and

documents covered under Provisional Assessment as "PROVISIONALLY ASSESSED" vide
Order No.......... dated .............." . There is a declaration in E.R.1 where assessee have to
mention the goods under ‘provisional assessment’.

2.5 Notwithstanding ‘self-assessment’, all cases of provisional assessment has to be

finalised by the Deputy/Assistant Commissioner of Central Excise, within a maximum
period of 6 months. All the cases where provisional assessment cannot be finalised within
6 months must be submitted to Commissioner with the request letter of the assessee
(through Deputy/Assistant Commissioner of Central Excise) indicating the reasons for non-
finalisation and amount of differential duty for future clearances, before the expiry of the
above-said period. If the Commissioner is satisfied with the reasons, he may extend the
period, or otherwise direct the method to be adopted for finalisation of the assessment.
For extending the period beyond one year from the date of provisional assessment, the
request letter of the assessee should be put up to the Chief Commissioner in the same
manner through Commissioner with his comments. The time limit of finalising the
provisional assessment shall be applicable even to cases ordered for provisional
assessment prior to 1st July, 2001.

2.6 Finalisation of provisional assessment means finalisation of an issue/ground and

thereafter finalisation of each E.R.1s. The amount will be communicated to the assessee
at the earliest. The amount of each differential duty shall be paid along with interest at
the rate of twenty four percent per annum from the first day of the month succeeding
the month for which such amount is determined, till the date of payment thereof.

2.7 In the event the assessee will be in a position to ascertain the duty himself. He
may, pay the duty on his own at the earliest and in that case he will not have to incur
interest on account of time taken by the Department to finalise assessment and
communicate the amount.

2.8 Where any refund becomes due to the assessee, order shall be passed for such
refund, but disbursement shall be subject to further verification about incidence of such
duty. The assessee will be required to submit proof to the Assistant/deputy Commissioner
of Central Excise that the duty incidence was borne by him (assessee). If the assessee
fails to produce such proof/evidence, the Assistant/deputy Commissioner of Central
Excise will pass an order for depositing the amount in Consumer Welfare Fund in the
prescribed manner. Otherwise, the refund shall be give along with interest at the rate of
fifteen percent per annum from the first day of the month succeeding the month for
which such refund is determined, till the date of refund.

2.9 Though it is incumbent upon the assessee to ensure that the bond amount and
corresponding securities are sufficient, the Divisional as well as the Range Officer will also
keep a strict vigil on such cases with the help of 'Provisional Assessment Register' .

2.10 The Assistant/deputy Commissioner of Central Excise will be held responsible to

ensure that bonds for proper amount i.e., 3 times of the estimated differential duty are
taken, in case of general bonds and that these are backed by proper (25%) security/
bank guarantee of the bond amount.

2.11 The format of bond for provisional assessment has been specified in Notification
No. 56/2001-Central Excise (N.T.) dated 3.7.2001 (Annexure-7).

3. Initiation of Provisional Assessment by Department

3.1 Rule 7 of the said Rules does not provide for the Department, suo moto, issuing
directions for resorting to provisional assessment. Therefore, when the Central Excise
Officers, during scrutiny or otherwise, find that self-assessment in not in order the assessee
may be asked for all necessary document, records or other information for issue of duty
demand for differential duty, if any, after conducting inquiry. Where the assessee fails to
provide the records or information and Department is unable to issue demand, ‘Best
Judgement’ method may be used to raise demand based on collateral evidences. The
burden will be on the assessee to provide information for appropriate re-determination of
duty, if any.

4. Application of new provisions

4.1 The provisions of Provisional Assessment relating to interest clause and statutory
time limit are prospective. In other words, these provisions shall be applicable only to
those cases of provisional assessment, which are ordered on or after 1st July, 2001.

Part V
 Manner of payment of duty and Account Current

1. Manner of payment of duty

1.1 Rule 8 of the said Rules provides that duty relating to removals during a fortnight
of a month can be discharged within five days of the close of that fortnight, except that
in the last fortnight of the month of March, the duty has to be discharged by the last day
of the month. In case of a manufacturer availing an exemption based on value of
clearances during a financial year, the duty for a month may be discharged by fifteenth
day of the succeeding month.

1.2 An assessee may also exercise the option of payment of duty consignment-wise.

1.3 There is no specific provision in the new Rules for clearance of goods without
payment of duty for storage outside the factory. However, considering that there may
be genuine difficulties for sugar industry i.e. sugar has season production , but its off take
is through out the year, and that large quantity of the off take (sale) sugar is controlled
by government [levy sugar], the manufacturer may not be in a position to clear the
goods on payment of duty. Storage of such huge quantities within the factory will be
burdensome. Accordingly, it has been decided to allow storage of non-duty paid sugar
outside the factory, under such bond and securities/sureties and such conditions and
limitations as the Commissioner may specify for a manufacturer on case to case basis.

1.4 The duty can be discharged by debiting an account current (also referred to as
Personal Ledger Account [PLA]) and debiting the CENVAT Credit Account maintained
by the assessee under the provisions of CENVAT Credit Rules, 2001.

1.5 No format for CENVAT Credit Account has been specified. The assessee has to
maintain this account in his own format. This account is a credit-debit account wherein
the admissible credit in respect of inputs and capital goods received by the assessee in
his factory is taken and debit is made for payment of any duty.

1.5 In account current [Personal Ledger Account], credit is taken by depositing

money in the banks on T.R.6 Challans. The guidelines regarding account current are
mentioned in subsequent paragraphs.

2. Account current and procedures relating thereto

2.1 In order to open a new Personal Ledger Account, the manufacturer, quoting
his registration number, shall obtain the New Excise Control Code Number (New ECC
Number), which is a Permanent Account Number (PAN)-based number. Once
Department adopts ‘common number’ for registration and accounts, separate ECC
number shall not be required.

2.2 The manufacturer working under the procedure shall maintain an account
current (Personal Ledger Account) in the Form specified in Annexure-8.

2.3 Each credit and debit entry should be made on separate lines and assigned
a running serial number for the financial year.

2.4 The PLA must be prepared in triplicate by writing with indelible pencil and
using double-sided carbon - original and duplicate copies of the PLA should be
detached by the manufacturers and sent to the Central Excise Officer in
charge along with the monthly/quarterly periodical return in form E.R.1.

3. Credit and debit in account current

3.1 The assessee may make credit in the PLA by making cash payment into the
Treasury/or Authorised Bank. If allowed by the Commissioner, In exceptional cases,
such as sudden strike in bank, natural calamity, riot etc., after sending by Registered
A.D. post or by a messenger a cheque for the requisite amount to the Chief
Accounts Officer of the Commissionerate, provided procedure specified in this
regard are followed.

3.2 Deposit into the Treasury of the authorised bank should be made in a Challan
in form TR 6 under the correct Head of Account. The Assessee’s ECC No. should
also be indicated in the challans. A copy of each Treasury Challan bearing
Treasury/Bank seal and the signature of the authorised officer of the Treasury/Bank
which is received back from the Treasury/Bank in token of having made the
deposit, should be sent by the assessee to the Central Excise Office along with the
monthly periodical return in form E.R.1/E.R.2.

3.3 There is an ‘Explanation’ to sub-rule (1) of rule 5 that the duty liability shall be
deemed to have been discharged only if the amount payable is credited to the
account of the Central Government by the specified date. It is being interpreted
that it refers to deposit of duty amount by the focal point banks into the account of
Government. This is not the intention. Once the assessee has deposited a cheque in
bank and the same is honoured or pays in cash/drafts and the bank gives receipt
stamp on TR-6 Challans, the same shall be treated as ‘credited to the account of the
Central Government’.

3.4 No restriction exists with regard to any minimum amount, which should
necessarily remain in balance to the credit of an assessee in his PLA. With the
fortnightly/monthly payment system, there should be enough credit at the time of
payment of duty for the fortnight.

3.5 Where an assessee is required/chooses to pay duty consignment wise (for the
reasons of defaults earlier):

(i) Duty on each clearance should be paid by the assessee by

making debit entry in the PLA prior to the removal of the goods
outside the factory premises or for being taken into use inside the
factory premises. If any goods are removed from the factory without
such debit entry they will be treated as non-duty paid.
(ii) Duty on clearances of any excisable goods as samples in such small
quantities as the Commissioner may approve in respect of any
commodity may be paid on the last working day of the month by
a single debit in the account current.

3.6 Mutilations or erasures of entries once made in the PLA are not allowed. If
any correction becomes necessary, the original entry should be neatly scored
out and attested by the assessee or his authorised agent.

4. Payment of rents, fines or penalties

4.1 In case where miscellaneous dues like rents, fines or penalties are to be
paid by the holder of account current he may be advised to make payments of
such accounts directly into the authorised bank under Challan in form T R 6
supported by order of demand, if any. Such challans need not be counter-
signed by the Departmental Officer but should indicate the particulars of
penalties, rent etc, deposited. If, however, the account holder desires that such
miscellaneous dues should also be paid through an account current, he may be
permitted to open a separate account current for this purpose under the group
minor head "E-Miscellaneous-1 Miscellaneous".

5. Account Code Directory

5.1 Regarding the Account Code Directory for the purpose of computerisation,
separate instructions have been issued by the Principal Chief Controller of Accounts
C.B.E.C., which may be referred to.

6. Procedure for deposit of Central Excise duties during bank strikes, natural
calamities etc.,

6.1 This procedure is to be followed only when all the banks nominated to collect
revenues within a Commissionerate are unable to transact business, due to strike of
banks or sudden closure of banks due to riots, imposition of curfew or natural
calamities such as flood, cyclones, etc.

6.2 Normally in all cases of closure of bank business due to strike by bank
employees, the Public gets advance intimation either through the press, or otherwise.
In all such cases, the assessees should make advance arrangements to deposit
money into the banks and keep sufficient amounts in their account current [PLA] so
that they do not face any difficulty in the clearance of the goods during the period
of the strike.

6.3 In cases, where the strike of bank employees is without notice, or where the
strike called for after due notice is prolonged beyond a reasonable time (say over 3-
4 days) or where there is sudden closure of banks due to riots, imposition of curfew or
natural calamities such as flood, cyclones, etc., the Commissioner may adopt the
procedure specified hereinafter in partial relaxation of the provisions contained in
the “Manual for collection of Revenue and payment of refunds etc.(hereinafter
referred to as ‘Manual’)” only for the duration of the strike or the sudden closures: -

6.4 The Commissioners should issue a Trade Notice stating that during the days of
the closure of bank business due to such strikes (specifying the dates wherever
possible), the assessees can send their cheques by registered post,
acknowledgement due (R.P.A.D.) or special messenger, with the TR-6 challans (in
quadruplicate) duly filled in, to the Chief Accounts Officers of the Commissionerates,
with a clear declaration that they have sufficient balance in their bank account.

(i) They should be advised to send a copy of the letter forwarding the
cheque, to the concerned Range Officer also.
(ii) On the strength of a cheque so sent, they may take credit in the
P.L.As.
 (iii) On receipt of the cheque in his office, the Chief Accounts Officer will
immediately intimate the concerned Range Officer about the name
of the assessee, the number and date of the cheque and its amount.
(iv) Immediately after the strike is over, all such cheques should be
deposited by the Chief Accounts Officer into the Focal Point
Bank/State Bank of India at the Headquarters or Reserve Bank of
India, as the case may be, through TR-6 challans (in quadruplicate)
according to the procedure prescribed in the Manual.
(v) The Chief Accounts Officer will send the Duplicate/Triplicate copies of
the receipted challans to the assessees and the quadruplicate copy
to the R.Os. concerned to enable them to exercise necessary checks
and prepare the monthly statement of revenue.
(vi) Bank commission or collection charges, if any, chargeable by the
banks should be debited in the P.L.A of the assessees by the Chief
Accounts Officer under intimation to them as also the R.Os.
(vii) If any of the cheques sent by the assessees are dishonoured, the
Commissioners shall take appropriate penal action as prescribed
under the rules.
(viii) The Chief Accounts Officer should maintain a suitable record in
regard to receipt and disposal of such cheques.

7. Payment by cheque when not permitted

7.1 For removal of doubts and to ensure uniformity of application of the

procedure it is clarified that the payment of duty/other dues through cheques
should not be permitted in the following cases: -

(i) If there is a strike in or closures of only one nominated bank of the

Commissionerate and the assessee still remains in a position to deposit
money in the other nominated banks or Departmental Treasury (wherever
they exist) – unless the assessees’ bank is the only nominated bank in the
Commissionerate.
(ii) In the case of declared Bank holidays because such holidays are known
well in advance.
(iii) Where the Public has been given advance intimation of a strike, unless the
strike is unduly prolonged (say over 3-4 days).
(iv) Where Bank employees adopt “go-slow” tactics.

Part- VI

SCRUTINY OF ASSESSMENT

1. Introduction

1.1 In view of the self-assessment procedure wherein the assessee himself assesses
the duty liability the responsibility of the departmental officers is to scrutinise the
assessment made for verification of its correctness.

2. Scrutiny of Assessment
2.1 The Central Excise Officers having jurisdiction over the factory/premises of the
assessee is responsible for the scrutiny of returns. For this purpose, the said officer(s) may
require the relevant documents. Though the statutory records have been dispensed with,
the assessee is required to maintain private records containing all requisite information as
required by different rules and also provide a list of all records maintained by him to the
Range Office. The Officer responsible for scrutiny of return may require the invoices issued
by the assessee, Daily Stock Account, Cenvat Account, cash ledgers, Ledger of all
receipts and payments and the source documents etc. It shall be compulsory for the
assessee to provide the necessary records upon receiving the “Requisition Letter’ from
the Range Officer or other superior officers. He shall hand over the records under proper
acknowledgement and receive them back under proper acknowledgement too. The
Officer scrutinizing return may require presence of the assessee or his authorised person
at mutually convenient time, for seeking certain information relating to the records.

2.2 The Superintendent of Central Excise in-charge of the Range Office, with
assistance of the Inspectors in-charge of the factory of an assessee, will scrutinise all the
returns. They shall, in selected cases, call all connecting documents including invoices
and the records and scrutinise the correctness of assessment.

2.3 The Deputy/Assistant Commissioner of Central Excise will scrutinise the returns of
the units, which pay duty-exceeding rupees one crore but less than Rs.5 crores from PLA
per annum every six months. They shall requisition all connecting documents including
invoices and the records and scrutinise the correctness of assessment.

2.4 The Additional/Joint Commissioner of Central Excise will scrutinise the returns of
the units which pay duty Rs. 5 crores or more from PLA per annum every six months. They
shall requisition all connecting documents including invoices and the records and
scrutinise the correctness of assessment.