Meaning
Excise duty is an indirect tax levied on the manufacture or production of goods within a country. It is imposed at the stage of manufacturing, but the burden is ultimately passed on to the final consumer.
It differs from customs duty, which is levied on imports and exports.
Nature of Tax
- Levied on production or manufacture.
- Collected by the central government in India (before GST reform).
- Applied only to goods, not services.
The taxable event under excise was the act of manufacture.
Constitutional Basis in India
Before the introduction of GST:
- Entry 84 of the Union List (Seventh Schedule) empowered Parliament to levy excise duty on manufactured goods.
- The Central Excise Act, 1944 governed the levy and collection.
After GST (2017):
- Excise duty continues only on specific goods such as petroleum products and tobacco.
Features
- Production-based tax.
- Ad valorem (percentage of value) or specific (fixed amount per unit).
- Input credit was available under the CENVAT system before GST.
Goods Traditionally Subject to Excise
- Petroleum products (petrol, diesel, aviation turbine fuel)
- Tobacco and tobacco products
- Manufactured industrial goods (before GST)
After GST, most goods were subsumed under GST except select items.
Difference Between Excise and GST
| Feature | Excise Duty | GST |
| Taxable Event | Manufacture | Supply |
| Scope | Goods only | Goods + Services |
| Level of Levy | Central | Centre + States |
| Cascading | Reduced via CENVAT | Eliminated via seamless ITC |
GST shifted the focus from manufacture to supply and integrated the indirect tax structure.
Economic Significance
Excise duty historically:
- Generated substantial central revenue.
- Influenced pricing of petroleum and tobacco.
- Served as a fiscal tool for public health and consumption control.
Even today, excise on fuel remains a major source of revenue for the Union government.
Conclusion
Excise duty was a key component of India’s pre-GST indirect tax system, levied on manufacture of goods. While largely subsumed under GST, it continues to apply to specific high-revenue and strategic commodities, particularly petroleum and tobacco.
