CENVAT Credit formula unsuited for clearances from 100% EOU / EHTP / STP to DTA when exempt from levy of VAT/Sales Tax – Rule 3(7) (a) of CCR 2004 requires an amendment
WHEN a 100% EOU / EHTP / STP clears goods into DTA , duty is liable to be paid in terms of proviso to Section 3(1) of the Central Excise Act, 1944 read with Notification No. 23/2003-CE as amended.
Further, as per this notification, for instances where the goods cleared into DTA are exempt from payment of Sales Tax or VAT, the additional duty of customs leviable under Section 3(5) of Customs Tariff Act, 1975 shall be included while calculating the aggregate duties of customs.
The relevant portion of Notification No. 23/2003-CE which stipulates this position is extracted below.
The Column 4 against S. No. 2 of the Notification 23/2003-CE dated 31.03.2003 reads as follows:
“In excess of the amount equal to the aggregate of duties of customs leviable on like goods, as if,-
(a) the duty of customs specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), read with any other notification in force was reduced by 50%, and
(b) no additional duty of customs was leviable under sub-section (5) of section 3 of the said Customs Tariff Act:
Provided that while calculating the aggregate of customs duties, additional duty of customs leviable under sub-section (5) of section 3 of the said Customs Tariff Act shall be included if the goods cleared into Domestic Tariff Area are exempt from payment of sales tax or value added tax .”
As per this proviso, if the goods cleared into DTA are exempt from payment of sales tax or VAT or if such clearances are not liable to Sales Tax/VAT as in the case of stock transfers, then for the purpose of calculating the aggregate duties of customs, the additional duty of customs leviable under Section 3(5) of the Customs Tariff Act, 1975 shall also be included. This is all the more reinforced by the decision of the Larger Bench of CESTAT in Moser Baer India Ltd 2009-TIOL-1058-CESTAT-DEL-LB.
But is this element of additional duty of customs leviable under Section 3(5) of Customs Tariff Act, 1975 available as credit for the recipients of inputs and capital goods from 100% EOU / EHTP / STP in terms of CENVAT Credit Rules, 2004?
The answer is NO for the simple reason that the proviso to Rule 3 (7) (a) of CCR provides for a formula whereby the recipients of inputs and capital goods shall avail credit of duty paid by the 100% EOU unit/ EHTP / STP in terms of S. No. 2 of Notification No. 23/2003-CE dated 31.03.2003 as amended.
The formula for availment of credit is as follows:
Credit shall be equal to X multiplied by [{( 1+BCD /200) multiplied by ( CVD /100)}]] where X denotes the assessable value.
For the purpose of calculating the credit availability, only the elements of BCD and CVD are considered but not the additional duty of customs leviable in terms of Section 3(5) of the Customs Tariff Act, 1975.
This will only increase the cost of the finished goods cleared from DTA as the portion of additional duty of customs paid by the 100% EOU / EHTP / STP will not be available as credit for the DTA unit even though it is available as credit if such duty is paid on like goods imported into India subject to other restrictions as imposed in CCR , 2004.
In view of the above difficulty faced by the recipients of goods from 100% EOU / EHTP / STP , CBEC is requested to take note of this anomaly and come up with a suitable amendment to this formula and ensure that CENVAT chain is not hindered or broken due to this lacuna.