1. Localizations for India Implementation Guide
  2. Overview of Excise Tax

Overview of Excise Tax

An excise tax is a tax levied by the central government on goods manufactured in India. A buyer collects the excise tax or excise duty from the purchaser at the time of sale of a product. The excise duty is levied on all products specified in the Central Excise Tariff Act, 1985 (CETA).

The excise tax can be based on the value of goods or a fixed rate tax. Based on the notifications issued by the Central Government of India, some products are fully exempted from excise duty.

You can define one or more excise units for each company. Each company has one excise unit for each state and each excise unit is mapped to multiple business units. The transactions for excise tax occur at the business unit or excise unit level.

The system creates the transactions related to excise tax during the Procure-to-Pay (P2P) and Order-to-Cash (O2C) cycles. The P2P cycle comprises the period from the creation of a purchase order to when the payment is made to the supplier. When traders purchase goods on which excise tax is applicable, they must perform the tasks defined in the P2P cycle.

The O2C cycle comprises the period from the creation of a sales order to when the payment is received from the customer. When traders sell goods on which excise tax is applicable, they must perform the tasks defined in the O2C cycle.

For traders and dealers who work with the excise component of trade, the excise authorities have defined these requirements:

  • Manufacturers must pay excise duty when purchasing raw materials. This is a part of the P2P cycle. They must also pay excise duty when they sell the finished goods. This is a part of the O2C cycle. Manufacturers must maintain all statutory records according to the rules that the excise authorities have defined.

  • Dealers are not required to pay excise duty because they perform only a goods transfer.

  • Manufacturers who are exporters are not required to pay excise duty according to the excise rules. However, they must submit ARE 1 bonds or ARE 3 certificates, which are equivalent to the excise amount or excise quantity, to the excise authorities for a given period.

The manufacturers who send goods consignment outside the company for work do not have to pay excise duty if they receive the consignment within 180 days. They must submit the consignment note to the tax authorities to declare the receipt of goods within the required time period.

Each excise unit has to maintain legal records to submit to the tax authorities. These include:

  • RG1 register

    Excise units maintain this register. This register includes receipts, issues, and stock of furnished goods.

  • RG23D register

    Dealers maintain this register to record the stock transfer at purchase price.

  • Personal ledger account (PLA)

    Excise units maintain this register by depositing the cash amount for the duty payment in the bank with the TR-6 challan.

  • RG23A-II

    Manufacturers maintain this account for the purchase of raw materials. This account is also referred to as AII.

  • RG23C-II

    Manufacturers maintain this account for the purchase of capital goods. This account is also referred to as CII.