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Excise duty is an important indirect tax levied on the production and manufacturing of goods in India. While GST has replaced many indirect taxes, excise duty still applies to certain products like alcohol, petroleum, and tobacco. For business owners, understanding excise duty is essential to stay compliant with tax regulations and avoid penalties.
This guide simplifies excise duty, explaining its types, applicability, calculation, penalties for non-payment, and frequently asked questions.
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What is Excise Duty?
Excise duty is a tax imposed on the manufacture and production of goods within India. It is different from customs duty, which is levied on imported goods. The responsibility of paying excise duty lies with the manufacturer or producer, but it is ultimately passed on to the consumer.
Before the introduction of GST, excise duty was governed by the Central Excise Act, 1944 and administered by the Central Board of Indirect Taxes and Customs (CBIC). Today, excise duty is still applicable to select goods like alcohol, fuel, and tobacco.
Products Still Under Excise Duty
Although Excise Duty has been largely replaced by GST, it remains applicable to a few special category products, including:
- Petroleum products (Petrol, Diesel, Kerosene, Natural Gas)
- Alcoholic beverages (Manufactured within India)
- Tobacco products (Cigarettes, Bidis, Chewing Tobacco)
For other goods, GST has replaced Excise Duty, making compliance easier for small businesses.
Who Needs to Pay Excise Duty?
If your business manufactures goods falling under the Excise Duty category, you are liable to pay this tax. Typically, the following entities must comply:
- Manufacturers of excisable goods
- Entities removing goods for commercial use from a factory or warehouse
- Dealers selling petroleum, alcohol, or tobacco
Since GST now covers most goods and services, Excise Duty applies only to specific items.
Types of Excise Duty
Before GST, there were three major types of Excise Duty in India:
- Basic Excise Duty (BED) – Levied under the Central Excise Act, 1944 on goods manufactured in India.
- Special Excise Duty (SED) – Additional tax imposed on specific goods.
- Additional Excise Duty (AED) – Charged on certain items to distribute tax revenue between the Centre and States.
Post-GST, only Basic Excise Duty applies to certain goods.
Here's the updated version with penalties for non-payment of excise duty and four FAQs at the end:
How is Excise Duty Calculated?
Excise duty is calculated based on:
- Value-Based (Ad Valorem) – A percentage of the product's sale price.
- Quantity-Based (Specific Duty) – Fixed duty per unit (e.g., per liter or per kilogram)
- Combination of Both – A mix of value-based and quantity-based taxation.
For example, if a manufacturer produces 1,000 liters of liquor, and the excise duty is ₹100 per liter, the total excise duty payable is:
1,000 × ₹100 = ₹1,00,000.
The exact rates are decided by the government and are subject to periodic changes.
Penalties for Non-Payment of Excise Duty
Failure to pay excise duty can lead to severe legal consequences:
- Interest on Delayed Payment – Interest is charged on unpaid excise duty as per government rates.
- Monetary Penalty – A penalty ranging from ₹200 per day to a maximum of ₹10,000 may be imposed.
- Seizure of Goods – Authorities can confiscate products if duty is not paid.
- Prosecution & Imprisonment – In serious cases, businesses may face legal action and imprisonment for up to seven years.
It’s necessary to comply with excise duty regulations to avoid unnecessary financial losses and legal trouble.
How to Pay Excise Duty?
If you are liable to pay Excise Duty, follow these steps:
- Obtain Excise Registration – Businesses must register with the Central Board of Indirect Taxes and Customs (CBIC).
- Determine the Excise Rate – Check applicable rates on excisable goods.
- File Excise Duty Returns – Businesses must file ER-1, ER-2, ER-3 returns (depending on business type).
- Make Online Payment – Payment is made through the CBIC website using online banking or challans.
Post-GST, Excise Duty returns are mainly required for businesses dealing in petroleum, alcohol, and tobacco products.
Excise Duty vs. GST: Key Differences
| Feature |
Excise Duty |
GST |
| Scope |
Applied on manufacturing of goods |
Applied on supply of goods & services |
| Taxpayer |
Manufacturer |
Supplier (Manufacturer, Distributor, Retailer) |
| Governing Law |
Central Excise Act, 1944 |
GST Act, 2017 |
| Current Status |
Limited to select products |
Covers most goods & services |
For most businesses, GST has simplified taxation, eliminating Excise Duty compliance.
Benefits of GST Over Excise Duty for Small Businesses
Since the introduction of GST, small businesses have benefited from:
- Simplified tax structure (No need for multiple indirect taxes)
- Reduced compliance burden (No excise registration needed for most businesses)
- Input Tax Credit (ITC) availability (Eases tax burden and reduces costs)
For small businesses that don’t deal in excisable goods, GST has made taxation much more convenient.
Conclusion
Excise Duty was once a major tax for manufacturers, but with GST in place, it now applies only to specific goods like alcohol, tobacco, and petroleum products. If your business deals in these items, you must still comply with Excise Duty regulations. However, for most small businesses, GST has replaced Excise Duty, making tax compliance much easier.
Staying informed about tax regulations helps avoid penalties and ensures smooth business operations. If you deal in excisable goods, make sure to follow the correct Excise Duty filing and payment process to stay compliant.
