Overlapping duty rates due to multiple exemption notifications – Double whammy for exporters – CBEC should clarify
In December 2008, as a part of the stimulus package from the Finance Ministry, CBEC issued two notifications viz., 58/2008-CE and 59/2008-CE both dated 07.12.2008 which in turn amended various central excise notifications providing for an across the board reduction in effective rate of excise duty for various excisable goods by 4%. The haste with which these notifications were issued spelt trouble for certain manufacturers due to overlapping duty rates for some excisable goods in different notifications.
In DDT 1010 dated 12.12.2008, we highlighted this very aspect while comparing the rate of duty applicable to goods falling under Chapters 1507 to 1515. While Notification No. 59/2008 CE dated 07.12.2008 prescribed 4% duty for most of the goods listed therein including goods falling under Chapters 1507 to 1515 (apart from 8%, 20% and 20%+specific rates for a few others), the said goods attracted ‘Nil’ duty by virtue of Notification No. 3/2006-CE dated 01.03.2006 as amended.
To overcome the ambiguity in effective rates, DDT highlighted the clarification issued by JS TRU in his DO Letter 334/1/2008- TRU dated 29th February, 2008 in this regard for the benefit of the Netizens.
In this DO letter issued pursuant to Budget 2008, TRU clarified as follows:
"The general rate of excise duty (CENVAT) has been reduced from 16% to 14%. This reduction applies to all goods that hitherto attracted this general rate of 16%. In some cases, a deeper reduction has been made, the details of which are indicated in the subsequent paragraphs. These changes have been carried out by notification. The other ad valorem rates of 24%, 12% and 8% have been retained.
Since the reduction in the general rate has been carried out by notification, the possibility of the same product/item being covered by more than one notification cannot be ruled out. In such a situation, the rate beneficial to the assessee would have to be extended if he fulfils the attendant conditions of the exemption".
However, it appears that this TRU clarification on dual effective rates has fallen on deaf ears in the field formations.
Recently, the Head of Corporate taxation of a leading Industrial House contacted TIOL and brought to our notice the ambiguity in duty rates for goods falling under Chapter 63 by virtue of Notifications 58/2008-CE and 59/2008-CE both dated 07.12.2008 and requested us to clarify if they can avail the notification which is beneficial to them. TIOL cited the TRU Circular and suggested to the assessee that based on this clarification they are at liberty to choose a notification which is beneficial to them.
The assessee being a large exporter of textile articles wanted to avail the benefit of Notification 59/2008-CE which prescribes 4% duty for textile products of Chapter 63 and avail rebate of duty paid on finished goods exported and also refund under Rule 5 of CENVAT Credit Rules, 2004 for unutilized excess credit lying in their books.
When the assessee approached the jurisdictional excise authorities and mentioned about the TRU clarification and their preference to avail Notification No. 59/2008-CE which prescribes 4% duty instead of Notification No. 58/2008-CE which prescribes ‘nil’ duty, in view of the said clarification, the authorities informed them that in view of sub-section 1A of Section 5A of the Central Excise Act, 1944, where excisable goods are exempt from levy of excise duty absolutely, manufacturers of such excisable goods shall not pay excise duty on such goods. Hence, they are not eligible to avail the benefit of notification 59/2008-CE and were instead advised to avail benefit of exemption notification 58/2008-CE.
Since exempted goods defined under Rule 2(d) of CENVAT Credit Rules, 2004 includes goods which are chargeable to ‘nil’ rate of duty, and in view of the prevailing ambiguity in the provisions of Rule 6 [sub rule (1) read with sub rule 6(6)(v)] ibid and the fact that jurisdictional authorities have rejected refund claims under Rule 5 for export of exempted goods, the assessee was hesitant to avail notification 58/2008-CE which may put their input credit availment at risk.
The assessee lamented that the jurisdictional authorities have disregarded the Mumbai High Court decision in Repro India Ltd vs. Union of India & Anr holding that the phrase ‘excisable goods’ employed in Rule 6(6) ibid has a wider connotation and includes both dutiable and exempted goods.
In view of the dwindling exports in textile sector due to economic downturn and the difficulties faced by the exporters, the assessee has requested TIOL to take up this issue with the CBEC and request the Board to issue appropriate clarifications to the field formations in this regard.
While the ingenuity of the jurisdictional excise authorities in invoking provisions of Section 5A (1A) in such cases is commendable, their utter disregard for TRU DO letter which clarifies that an assessee is free to choose a notification which is beneficial to them, is despicable.
Recently, TIOL carried a CESTAT decision in Neo Foods Pvt Ltd vs. CC (Appeals) 2009-TIOL-976-CESTAT-BANG, wherein it was held that Rule 6(1) of CENVAT Credit Rules, 2004 is not a bar to avail CENVAT credit on inputs/input services utilized in export of exempted goods by 100% EOU. The CESTAT also exhorted that the principle of excise taxation envisages only export of goods/services but not taxes and therefore refund of unutilized credit by a 100% EOU is allowable in terms of Rule 5 ibid.
DDT hopes that the good Board will be considerate towards these exporters and come out with a suitable clarification on this issue very soon.