Rebate on Chewing Tobacco exported - D/Q confusion - When Mathematicians became stingy

By Vijay Kumar

DUTY payable by the manufacturers of Chewing Tobacco and Unmanufactured Tobacco is governed by the capacity determination rules notified by Notification No 11/2010 CE( NT) Dated 27 th Feb 2010 read with Notification 16/2010 CE Dated 27 th February 2010. While the former Notification fixed the deemed capacity of the packing machines, the later fixed the duty payable per machine.

On 18th May 2010, Notification 22/2010 CE( NT) was issued to provide for rebate of duty paid on the Chewing Tobacco and Unmanufactured Tobacco exported under rule 18 of the Central Excise Rules, 2002 (please see yesterday's DDT). Unlike the other excisable goods, it is not possible to identify the exact amount of duty paid on the goods exported when the mode of payment is based on the capacity determination. The only possible way to find out the duty element per pouch is by dividing the duty payable per machine (fixed under Notification 16/2010 CE – say Rs X) by the number of pouches fixed per machine (fixed under Notification 11/2010 CE(NT) – say Y ( Nos ) and grant rebate. Let us say the rebate under this method per pouch, R = X/Y.

But, those who actually produced more pouches than the fixed capacity would get more rebate as X / actual production would be less than “R”. To get over this, if the rebate is linked to the actual production, then wherever the actual production is less than the capacity fixed, the rebate will be higher than the “R”. So, the businessman in Bureaucrat woke up. They wanted to ensure the rebate should be linked to the actual production and at the same time wanted to ensure it should not be more than the “R” and it resulted in limiting the rebate to ‘ monthly average rate of rebate per pouch' subject to a ‘ maximum amount of rebate per pouch' . An extraordinary effort to avert a possible audit para by CAG!

Assuming an assessee has two packing machines one dedicated to pouches of MRP Rs 1.50/ and the other of MRP Rs 3.00/-, and if the assessee is exporting pouches from both these machines, as per the Notification 22/2010 CE, the rebate per pouch would be as under:

Maximum amount of rebate per pouch

(Duty payable per machine per month as provided in Notification No 16/2010 – CE dated 27 th February, 2010 divided by Total number of pouches deemed to be produced per machine as per rule 5 of the said rules)

Now, the rebate for pouches from Machine 1 would be Rs 0.378/- per pouch whereas for pouches from Machine 2, it would be Rs 0.693/- per pouch.

This is what the Board wanted, but when it comes to drafting the Notification, it seems some confusion has been created while defining D and Q. As per the Notification,

D = Total duty paid for a month for the packing machines used for manufacture of Chewing Tobacco or Unmanufactured Tobacco of the Retail Sale Price which has been exported

Q = Total quantity of pouches manufactured from said machines in the month

If the assessee has more than one packing machine, like in the above example, the question is whether the total duty paid and the total quantity of pouches should be taken together for both the machines or it should be computed for different MRPs. From the explanation 1 to the notification it appears that the duty / quantity for all the machines of the same MRP should be taken for arriving D/Q even if there are no exports from a particular machine. While issuing such complicated formulae, it would be helpful if some illustrations are also given.