Ahead of the formation of the new government, the Central Board of Indirect Taxes and Customs has announced plans to overhaul a pre-Independence era taxation law, intending to repeal old and redundant provisions. The Central Excise Bill 2024 Bill seeks to reform how excise duties are levied and collected in the country. Currently, it is unlikely that the Bill will be included in the upcoming full Budget of the new government.
The Central Excise Bill 2024 also proposes that goods made in a Special Economic Zone (SEZ) will not automatically avoid excise duty if brought to mainland India. Any applicable exemption will be notified separately. If implemented, this measure could curb the misuse of incentives and alleged duty evasion at SEZ units.
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The Central Excise Bill 2024
Excise duty is applied to specific goods like tobacco products and five fuels – crude oil, gasoline, diesel, natural gas, and air turbine fuel (ATF). While the excise on most goods were subsumed by the Goods and Services Tax (GST), states were not prepared to bring high-revenue-earning items into the GST regime. Tobacco attracts both GST and central excise duty. The government collected more than Rs 3 trillion from central excise in the financial year 2023-24. States levy value-added tax on petroleum products, not state GST.
The proposed Bill focuses on the remaining excisable items. By aligning the excise duty regime with the GST and customs frameworks, the proposed Central Excise Bill 2024 will reduce the compliance burden for oil and gas companies. Under the current tax system, ONGC and Indian Oil Corporation, among others, pay GST on equipment, materials, and services they use. However, the finished products are taxed under excise duty. This mismatch between tax systems creates inefficiency because companies cannot claim credit for the GST they paid earlier when they pay excise duty.
In essence, the Central Excise Bill will replace the 80-year-old Central Excise Act. Currently, companies such as Oil and Natural Gas Corp, Oil India Ltd, and Indian Oil Corp face a massive compliance burden, which may be alleviated under the new law. The government has sought public comments on the Bill, and stakeholders have until June 26 to offer their feedback. The new Bill incorporates all the rules for claiming tax credits under the excise duty regime.
The Bill aligns with the larger goal of the government to promote ease of doing business in India. Just as the service tax law underwent modifications in 2015 to facilitate a smooth transition to the GST regime for services, the government is now focusing on modernising the Central Excise Act to help businesses and ultimately transition the remaining commodities to GST. Given that excise duty applies only to a limited number of products, a lengthy and outdated law is unnecessary. Instead, the Central Excise Bill may prove to be a practical and relevant draft tailored for these specific sectors.
In a major relief to businesses, interest on delayed refunds will begin accruing after 60 days from the date of the refund application under the Bill, compared to the current 90 days. There is also some relaxation for the tax authorities, who will have three years to raise duty demands, as opposed to the two-year limit prescribed in the existing excise law. If the Bill becomes legislation, it will provide certain powers to central excise officers, including a structured framework for audits. Currently, no formal audits are conducted by excise officials.
As far as SEZs are concerned, these units enjoy special incentives and tax benefits, including exclusion from central excise duty. The Bill emphasises safeguarding government revenue. Even with a handful of items, excise duty remains a significant revenue source for both the Centre and states. States tax them via value-added tax (VAT) and not state GST. The Bill introduces a new system for claiming tax credits on excise duties.
The current system deploys CENVAT (central value-added tax) credit, which the Bill proposes to replace with a clearer section dedicated specifically to central excise duty credit. Unutilised credit balances of duty paid under the existing act will be allowed to be transferred in the proposed act as transitional credit. As the government is taking feedback on the Bill, stakeholders should carefully examine it and submit feedback to the Central Board of Indirect Taxes and Customs by the deadline.