Excise Duty under GST

|Updated on: August 24, 2021

What is Excise Duty?

Excise tax is a duty on manufactured goods which is levied at the moment of manufacture, rather than at sale. This type of taxes on manufactured goods are often associated with customs duties (which are levied on pre-existing goods when they cross a designated border in a specific direction); customs are levied on goods which enters– as taxable items – at the border, while excise is levied on goods which came into existence inland.

Though referred to as a tax, excise is specifically a duty; tax is technically a levy on an individual (or more accurately, the assessment of tax on the self basis), while duty is a levy on particular goods.

Therefore excise duty considered an indirect tax that the producer or seller who pays the levy to the government is expected to try to recover the tax component by raising the price paid by the eventual buyer of the goods. These are imposed in addition to an indirect tax such as a sales tax or value-added tax (VAT).

Excise duty after GST implementation

Post-implementation of GST, the following taxes have been replaced by GST. They are

At the Central level:

  • Central Excise Duty
  • Additional Excise Duty
  • Service Tax
  • Additional Customs Duty is commonly known as Countervailing Duty, and
  • Special Additional Duty of Customs

At the State level:

  • State Value Added Tax/Sales Tax
  • Entertainment Tax
  • Octroi and Entry tax,
  • Purchase Tax,
  • Luxury tax, and
  • Taxes on lottery, betting and gambling.
  • Fat tax imposed in Kerala

Excise duty is levied on the manufacture of goods and levied at the time of removal of goods. While GST will be levied on the supply of goods and services. In GST, Excise duty’s place has been taken by Central GST as excise is levied by Central Government and revenue from CGST will also be of Central government.

Will GST replace excise duty?

Goods and Services Tax is often assumed to be a complete unification of all indirect taxes currently levied in India by Central and State governments, but the reality is a little different. Though it is true that most major indirect taxes will be subsumed under GST, there are still certain products on which the indirect taxes will not be covered.

Typically, this is when the taxes are either outside the purview of the GST constitutional amendment, or there is an agreement between Centre and States to defer their inclusion.

Following are the products which still carries the levy of excise post GST :

  • Tax on items containing alcohol 

Alcoholic beverages for human consumption has been kept out of the purview of GST as an exclusion mandated by constitutional provision. Sales Tax/VAT has been continued to be levied on alcoholic beverages as per the existing practice. VAT is levied on alcohol purchases in some states, and there will be no objection to that. Excise duty, which is presently levied by the states, may also be unaffected.

  • Tax on Petroleum products 

As for petroleum products, although the GST constitutional amendment provides for levying GST on these products, it allows the timeframe for their inclusion to be decided by the GST Council. Therefore, in the initial years of GST, petroleum products will remain out of the scope of GST.

The existing taxation system under VAT and the Central Excise Act will continue for both of the commodities listed above.

Point of differences between excise duty and GST

Point of difference

Excise Duty

Goods and Services Tax

Tax base

Levied on manufacture

Goods and Services Tax is levied from manufacture until the sale of goods to the customer. GST is levied on goods and services also.

Point of taxation

At the time of removal of goods

At the time when the supply of goods and services materialize.

Rate of taxes

As per central excise tariff rules, the rates of excise duty are specified. Currently, the rate of excise duty is 12.36% and it varies according to the type of goods.

Under GST, we have following rates of taxes viz., 0%, 5%, 12%, 18%, 28%.

Return filing

To file monthly returns and an annual return before 30th April.

Monthly or Quarterly returns have to be filled each month and the annual return has to be filed before 30th September.

Input Tax Credit

In Excise, credit can be taken on the tax charged on input goods and services.

In GST also credit can be taken of both goods and services. But the CGST credit cannot be adjusted against SGST credit and vice versa. IGST credit can be availed against IGST or CGST or SGST.

Invoice matching

No such concept and ITC is claimed on the basis of self-assessed return filed by the taxpayer.

In GST, credit will be given on the basis of invoice number matching.

State excise duty under GST

Excise duty is generally a central levy but not all levies are raised by the centre. Excise duty on production of few items including that on liquor is imposed by state governments. Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the State Government and is called “State Excise” duty. For most of the states, excise duty is the second largest tax revenue after sales taxes (state VAT).

States cannot impose separate rates unless it is recommended by the GST Council. However, for certain products like alcohol (other than for human consumption), alcoholic preparations and narcotic substances, the States have continued the levy of current taxes like VAT or State Excise duty over and above the GST.

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