TIOL-DDT 117 · the untouched capture
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<b><font color="#6633CC" size="3">TIOL-DDT 117</font><br>
18 05 2005<br>
Wednesday</b></font></p>
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<b>Inputs used exclusively for the manufacture of exempted goods</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> If inputs are
used in the manufacture of exempted as well as dutiable final products, the
assessee is required to maintain separate accounts or pay 10% on the exempted
final products. What happens if some of the inputs are clearly identifiable
as used only in the manufacture of exempted final products? Board had in <i>Circular
No. 754 /70/2003-CX</i>, dated 9-10-2003 clarified that <br>
<br>
• the option to maintain the separate accounts or payment of 8% (now
10%) of the price of the exempted goods can be exercised only in respect of
common inputs used for the manufacture of dutiable and exempted goods<br>
<br>
• Where any inputs are clearly identifiable as used only in or in relation
to the manufacture of final products which are exempt from payment of duty,
CENVAT credit is not admissible on such inputs which are used exclusively
for the manufacture of exempted final products<br>
<br>
• no credit can be taken on inputs which are used exclusively in or
in relation to the manufacture of exempted final products<br>
<br>
• Rule 6 of CENVAT Credit Rules, prescribes that no CENVAT credit shall
be allowed on such quantity of inputs which is used in the manufacture of
exempted goods.<br>
<br>
• this position was the same in erstwhile Central Excise Rules, 1944
and there has been no change in this principle<br>
<br>
• The procedural facility is prescribed to take care of the practical
difficulties which may be faced by the manufacturers using the same inputs
in both dutiable and exempted final products<br>
<br>
Though the Board had come up with this clarification, it is interesting to
note that the issue had been raised by a Show Cause Notice issued on 27-12-1996,
nearly nine years ago and the tribunal in an emphatic order in 1999 - EICHER
TRACTORS v COMMISSIONER OF C. EX., NEW DELHI - 2000 (116) E.L.T. 712 (Tribunal)
held that the option to pay 8% was not available in respect of inputs which
are exclusively used in or in relation to the manufacture of the exempted
final products. Exactly what the Board clarified after four years and several
Audit objections. <br>
<br>
In his Report No.11 of 2004 (Indirect Taxes – Central Excise & Service
Tax) in para 5.5.4, the CAG had pointed out, <br>
<br>
M/s. Aurobindo Pharma Limited, Unit IV, in Hyderabad I Commissionerate of
Central Excise, engaged in the manufacture of bulk drugs, availed of Cenvat
credit on selinium metal powder, ethylene diamine and propylene glycol which
were exclusively used in the manufacture of pyrazynamide, an exempted product.
Assessee paid eight per cent of the value of the said product under rule 57AD
(2). This was not correct as the above rule is attracted only if the inputs
are used in the manufacture of exempted and dutiable goods. The entire credit
of Rs.67.03 lakh availed on these inputs during the period between June 2001
and April 2002 required recovery. <br>
<br>
On this being pointed out (April 2002), the Ministry while admitting objection
stated (October 2003) that a show cause notice demanding Rs.67.03 lakh had
been issued besides demanding interest and proposing imposition of penalty.
<br>
<br>
What could have happened to this case? Predictably the Commissioner confirmed
the demand. The matter obviously reached the Tribunal. <b>DDT understands
that the Tribunal has allowed the appeal of the party; that is according to
the Tribunal, credit cannot be denied on inputs exclusively used in exempted
final products.</b><br>
<br>
As reported in yesterday’s DDT, Government has now added an explanation
to Rule 6(3), <i>“For the removal of doubts, it is hereby clarified
that the credit shall not be allowed on inputs and inputs services used exclusively
for the manufacture of exempted goods or exempted services.”</i><br>
<br>
This clarification is applicable only from 16th May 2005 and so till 15th
May 2005, this credit is available! Wait for that retrospective validation!<br>
<br>
<font color="#006633"><b>Additional Customs Duty on goods produced in SEZ</b></font><br>
<br>
The 2005 Budget imposed a new additional customs duty ( relates to vat/sales
tax etc) under Section 3(5) of the Customs Tariff Act. Now the goods manufactured
in SEZ and brought to the DTA were exempted from this duty. And how did the
Government do it? Obviously by an exemption notification, True! But there
was a joke. The Government exempted this customs duty by a Central Excise
notification! <b>Strange but True.</b> Please see Notification No. 9/2005
dated 1.3.2005, which in exercise of the powers conferred by Section 5A of
the Central Excise Act exempted these goods from payment of duty leviable
under section 3(5) of the Customs Tariff Act!. <b>Under the Central Excise
Act, Customs duty was exempted. </b><br>
<br>
Government appears to have realized this mistake and has now made a correction.
By Notification No. 25/2005-CX, dated, May 16, 2005, Notification No. 9/2005
is rescinded and by Notification No. 45/ 2005-Cus, Dated: May 16, 2005, the
same notification is issued under the Customs Act. Strangely enough it was
only on 13th May that Notification No. 9/2005 was amended and may be it was
that time that this mistake was noticed.<br>
<br>
Any correction is welcome, more so the attitude and will to correct.<br>
<br>
<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2005/etariff05_025.htm">Notification
No. 25/2005-CX, dated, May 16, 2005</a> and <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2005/ctariff05_045.htm">Notification
No. 45/ 2005-Cus, Dated: May 16, 2005</a><br>
<br>
<font color="#006633"><b>Vijay Mallya’s sword – again in news</b></font><br>
<br>
Last time around when Vijay Mallya bought and brought Tipu Sultan’s
sword to India, there was some controversy. He did not smuggle it into India.
He brought it with all his typical fanfare and right through Customs. The
Bangalore Customs thought, as the sword was of Indian origin, no duty was
payable. Later they realized that not only was duty payable, but import without
a licence was not valid. Customs top brass had ordered an inquiry. What happened
to the sword? Mallya has recently sent the sword to San Francisco's Asian
Art Museum for display. Now the new controversy is “how was the export
allowed?”, in contravention of the Customs Act, Foreign Trade Policy,
The Arms Act and The Antiquities and Art Treasures Act.<br>
<br>
<font color="#FF6666"><b>Until Tomorrow with more DDT<br>
<br>
Have a Nice Day. <br>
<br>
Mail your comments to</b></font> <b>vijaywrite@taxindiaonline.com </b></font>
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