Excise Duty

Excise Duty All goods that are produced or manufactured in India shall be charged a duty of excise called Cenvat at the rates specified in the Central Excise Tariff. Every person who manufactures, produces, carries on trade, holds warehouses for excisable goods shall have to obtain registration under the excise laws. No excisable goods may be removed from the factory or a warehouse except under an invoice signed by the owner of the factory or his authorised agent. Every assessee has to submit to the superintendent of Central Excise a monthly return in the specified form. For specified situations such as manufacture of goods exempt under a notification, a prescribed declaration and/ or a financial statement needs to be filed. Credit of service tax paid on input services, by a manufacturer of goods, is now available, in addition to the credit that was available in respect of inputs/ capital goods. The following changes/ amendments have been made vide Budget 2006. •

Exemption from payment of excise duty on manufacture of computers has been withdrawn and with effect from March 1, 2006, excise duty of 12 percent has been imposed on manufacture of computers.

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'Computer' for the above purpose includes CPU cleared separately, CPU with monitor, mouse or keyboard cleared together as a set but shall not include input output devices or accessories such as monitor, key board, mouse, modem, UPS or web camera cleared separately

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Excise duty at the rate of 8 percent has been imposed on packaged software, also known as canned software on electronic media. However, exemption is provided to customized software, (i.e. custom designed software developed for a specific user or client).

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Excise duty on storage devices i.e. DVD drives, USB flash memory and Combo-drives has been reduced from 16 percent to Nil.

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Excise duty on MP3 Players and MPEG4 Players reduced from 16% to 8%.

Further, although the Finance Minister, in his speech stated that software downloaded from the internet are to be exempt from the levy of excise duty of 8%, no specific exemption notification has been issued in that regard. Pursuant to the Finance Act, 2006 the Central Excise Tariff (‘Tariff Act’) has been further amended with effect from 1 January 2007 for alignment with the Harmonized System of Nomenclature (HSN). The Central Government has issued several notifications for amending the existing exemption notifications. While the primary purpose of the new notifications is to ensure that the exemptions already granted are available after the change in the classification of the goods, there are some amendments for change in the rate of effective duty or for the purpose of clarification It appears that software downloaded from internet should not be liable because there is no excise tariff entry for software which is downloaded from internet. However, in view of the amendment in the Tariff Act, a separate Notification No 49/2006, dated December 30, 2006 has been issued which provides for levy of excise duty at the rate of 8% on Software (HSN classification 8523). This leads to an implicit ambiguity regarding the classification of software downloaded through email or a web server or a FTP server, i.e. whether while being downloaded could fall under the

category of 'software’ as classified under the amended tariff heading 8523 and be subject to levy of excise duty at the rate of 8%.. Accordingly, it seems from the Budget speech and Memorandum to the Finance Bill, 2006 that the authorities do not intend to levy excise duty on downloaded software although there is an ambiguity in that regard in the absence of a specific exemption to that effect.