Colouful Understanding of the term Exemption, Rebate, Abate in Excise

Excise

Well Before we move Further, Let’s give u a Brief Idea about Excise.

Excise is derived from the Word “Excisum”

There is a levy of Duty or Duties of Excise upon Manufacture of Excisable goods in India.

And since it’s a Duty, it’s not upon Sales but upon Manufacturing

act copy

For Further Details Click Here

Now First Lets Understand Few Basic Terms

Abatement in Excise

What is Abatement?

Abatement is nothing but a decrease or Diminution in rate of Duty for a certain period of Time, as notified by the government.

Are there any Conditions to claim Abatement?

NO. Abatement shall not be subject to any conditions or limitations,

Why this Abatement?

Abatement is generally provided to reduce the tax burden among the tax payer.

In case of about 110 products, duty is payable u/s 4A of Central on basis of MRP printed on the package, after allowing abatement at specified rates. MRP should be inclusive of all taxes and duties.

The provision applies only when product is package intended for retail sale and is specified in a notification issued u/s 4A.

Much like when something is on sale, you pay less up front.

Is it Different from Rebate? Rebate vs Abate

Yes both the terms are Different. Although both reduces the duty amount, but rebate and abate are totally different.

What is Rebate?

Rebate is also means decrease in the rate of Duty (& DUTY Amount) subject to such conditions and limitation as may be imposed by the Government through various notification. A tax rebate is when tax have been paid and you get a refund, or money back to you. Just like, when you purchase an item and the company sends you money back.

Why this Rebate?

Rebate is generally provided to promote such industry or such goods or export as notified by the Central Government from time to time.The Tax so paid, is refundable. Example: Rebate/refund of Excise/Service tax paid on input is obtained if taxable goods/service is exported

Wait…I am getting Confused!!

So what is Exempted Goods??

Exempted goods refers to those excisable goods for which no duty is to be paid for the Time Being

Are Exempted Goods Excisable?

Yes, they are. But exempted goods are not dutiable.

WHY THIS REBATE, ABATE & EXEMPTION ??

Well One always wonders why there is so much disparity between rich and poor people in our great nation – INDIA. Rich are becoming richer and poor are becoming poorer…why..why… why ?

One reason is cost of living / inflation caused by big margins of profit enjoyed by the manufacturing/servicing industry against the goods and services sold through agents, dealers, etc.

M.R.P. or maximum retail price is written on the packaging of the goods and the retailers may sell at this price or below it but never above it. We at Central Excise are given the duty of collecting Central Excise Duty on the manufactured goods when they are removed from the factory for consumption/usage.

When duty is calculated on the selling price it is not charged on the full value of the selling price as some ABATEMENT is given by the Govt. which ranges from 30% to 75%.

Central Government can permit reasonable abatement (deductions) from the 'retail sale price'. While allowing such abatement, Central government shall take into account excise duty, sales tax and other taxes payable on the goods.

1. If more than one 'retail sale price' is printed on the same packing, the maximum of such retail price will be considered

2. The 'retail sale price' should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc.

3. Central Government has to issue a notification in Official gazette specifying the commodities for which the provision is applicable and the abatements permissible.

Relevant MRP copy

Means if an Assessee of Central Excise is manufacturing goods whose selling price is Rs.100/- and he is availing benefits of abatement, say 30% then he has to pay tax on Rs.70/- only and not Rs.100/-. Remember, Abatement is as high as 75%...Mind it Anna…. It means for a particular sector enjoying the benefits of abatement the duty liability is reduced to a very great extent. It also helps in combating high amount of multiple types of tax on a single commodity. It makes sure that doing business is feasible and the final consumer, i.e. the general public doesn’t get overburdened with the high rates of indirect taxes. Up to here the story is very impressive and abatement seems to be a very good measure of public welfare……but look at these figures;-

Abatement (in percentage) for some of the goods/sectors is as follows:-

Pharmaceuticals: 35%

Cigarettes and Pan Masala containing tobacco: 55%

Clocks: 40%

Mineral Waters: 45%

Glazed tiles and vitrified tiles: 45%

Abatement to Goods and Transport Agency service provider: 75% ( Now the Govt. Has come up with a different thing that the value on which Service Tax will be charged will be 25% of the Invoice value, so this thing changes the fact that abatement is given to GTA Agency but not in the name of abatement anymore)

Stress_Thinking copy

Now the other side of the coin is as follows:-

Ruling party allows more abatement than the company is eligible for. This is one aspect of black money generation.
The other is that the selling price itself is hiked up so that more value flows back to the company through the agents and dealers, because there is no bargains or negotiations between the buyer and the seller of goods which have MRP tag.

Both the illiterate and the educated do not bargain over the "Printed" MRP prices. People bargain only in the case of prices quoted orally, not in print. The point here is that the real profit margin is not known to anybody - the agents, or the consumers or the government. In food industry, the margin of profit is more than 40 %, after deducting the cost for all inputs and expenditure. This high margin of profit has now spread over to all other goods also.

For example, my neighboring vendor of vegetables sells onion at 20 Rs. a kg, while the Farmers' Market at one km distance sells same onion for Rs.10 a kg. See the profit margin! Similar high margin of profit has started pouring into the yards of manufacturers or service industry also.

Such flow back of such ‘accounted’ money from the consumers, to the manufacturing companies or service providers contributes to the black money we all are speaking about.

With Contributions from Mr Amar Singh,

Also Read : Understanding Transfer Pricing in Colourful Manner

Comments (2)

  • srahmed said: Sep-26th-2013

    Thanks, Very informative. Can you please help to understand how access value is calculated and how much margin is allowed between accessable value and unit sale price.

  • Prakasha S V said: Oct-25th-2013

    Good Info

Add A Comment