Draft Central Excise Bill: What Does The Revamp Of An 80-Year-Old Law Mean For India Inc

Seen as an alignment of the central excise law with the Goods and Services Tax and Customs framework, the draft Central Excise Bill, 2024, is currently being floated for public consultation till June 26 to replace the Central Excise Act of 1944. The bill comprises 12 chapters, 114 sections and two schedules.

Seen as an alignment of the central excise law with the Goods and Services Tax and Customs framework, the draft Central Excise Bill, 2024, is currently being floated for public consultation till June 26 to replace the Central Excise Act of 1944. The bill comprises 12 chapters, 114 sections and two schedules.

The bill has made room for increased administrative flexibility, from delegating powers to various levels of excise officers under specific conditions to emergency powers to amend excise duties, according to Vivek Agarwal, a policy expert who heads the India practice at the Tony Blair Institute for Global Change.

"It also clarifies roles and responsibilities that were explicitly missing in the 1944 Act. For instance, it includes the definition of terms like ‘assessee’ and fixes liability for dues related to excise duty on directors of private companies and partners of firms," he said.

Notably, the bill proposes to streamline the excise law by incorporating the Cenvat credit provisions.

Cenvat, or Central Value Added Tax, works like an input tax credit, helping manufacturers offset tax payments during manufacturing against the final excise duty payment.

The bill proposes introducing a Central Excise Duty instead of the Cenvat, said Agarwal, adding that it outlines conditions and restrictions and types of excise duties that can be credited and explicitly excludes some items from creditable inputs.

"...To ensure business continuity, it allows for carrying forward unutilised Cenvat credits as Central Excise Duty credits under the new system," he said.

In line with the modernisation of the tax system, digitisation, email communication, digital signatures, mandatory electronic filing of returns, and self-assessment by the assessee have also been suggested in the draft bill.

The bill intends to borrow the concept of ‘related persons’ from customs and Goods and Services Tax laws, said Rachit Jain, partner at Lakshmikumaran & Sridharan Attorneys.

In terms of limitation, the time limit for claiming a refund by an assessee is proposed to be one year from the earlier timeline of two years, while tax authorities may get up to three years' time to raise demands, Jain noted.

In cases of refund of duty, the interest on delayed refunds will start accruing after 60 days from the date of the refund application, instead of a three-month period that currently exists in the old law, Jain said.

Experts remain divided on whether the 80-year-old policy's facelift is a precursor to including petroleum products within the ambit of the GST—a point of contention that has been debated since the introduction of the GST law in 2017.

The bill has been drafted keeping in mind the limited applicability of the law with respect to specific goods that attract central excise duty, such as certain tobacco and petroleum products, according to Rajat Bose, partner, Shardul Amarchand Mangaldas & Co.

Central excise duty is currently imposed on petroleum products like crude oil, gasoline, diesel, natural gas, and aviation fuel, which are not included in GST. Tobacco is one exception that incurs both central excise duty and 28% GST currently.

Writing one year after the rollout of GST, former Finance Minister Arun Jaitley said that a formula for petroleum products was worked out and included in the Constitution amendment providing for the GST, leaving the final call for its implementation to states.

"...I would continue to make my earnest efforts and hopefully when the states are more comfortable with the revenue position, it would be an ideal time to strike for a consensus between them," Jaitley had said.

When the topic once again gathered steam during Congress' 2024 Lok Sabha campaign, Jaitley's successor, Nirmala Sitharaman, maintained a similar stand on the topic, noting that the Bharatiya Janata Party and the central government have been in favour of bringing petroleum products under the GST regime but await consensus from all states to bring about the change.

As of now, petroleum products remain outside the GST ambit, collecting revenue for states and the central government through value-added tax, central excise duty, and central sales tax.

Provisional accounts of the Union government indicate that in FY24, the central government collected Rs 3.05 lakh crore in central excise duty out of a total net tax collection of Rs 23.26 lakh crore.

The timing of the draft release and the deadline for comments make it possible for the bill's introduction in the full budget, said Mahesh Jaising, partner at Deloitte India.

On Thursday, Fitch Ratings hinted that the election outcome would bring broad policy continuity but with greater reform challenges, making the passing of ambitious legislation a challenge for the National Democratic Alliance. Whether the central excise bill would be one of them remains to be seen. The bill closes for public comments by June 26, ahead of the anticipated full budget in July.

Operationally, Agarwal expects that the larger digital integration and streamlining of processes will require effective training and planning during rollout to minimise the initial adjustment challenges and administrative burden.