Post Budget 2011 Changes - TRU Issues Clarifications
TRU has issued detailedclarifications on the post-budget changes in Customs and Central Excise.
Customs-1% Excise Duty Goods to attract 5% CVD: Doubts have been raised about the applicable CVD rate on the 130 items, on which Excise Duty @ 1% has been levied vide Notification 1/2011-CE dated 01.03.2011, when imported. It is further learnt that manual bills of entry have been permitted at certain customs locations as 1% CVD rate was not available in the system. This concessional rate of 1%, however, is available only if the Cenvat credit on inputs and input services is not availed of; otherwise all these items attract 5% Excise duty as prescribed vide notification 2/2011-CE dated 01.03.2011 and Tenth Schedule to the Finance Bill. At the time of updating of ICES, the Directorate of Systems had been advised not to feed Notification 1/2011-CE dated 01.03.2011 in the system as 1% rate will not be applicable for CVD purposes. There should have been no confusion on the subject. Since the CVD is levied to provide a level playing field for the domestic manufacturers, CVD is charged at a rate equal to excise duty rate. However, in respect of these 130 items, there are two excise duty rates. It needs to be appreciated that if CVD is levied @ 1%, the protection for the domestic manufacturer would be lost since in the country of origin, the overseas supplier enjoys input tax neutralization on goods exported to India (akin to availment of input tax credit), whereas on the other hand the domestic manufacturer suffers all the input taxes and 1% excise duty over and above that. Since 5% excise duty rate is payable when the cenvat credit of duties and taxes paid on inputs and input services is availed of, the tax treatment becomes equitable with the goods being imported into India, the input taxes having been neutralized in the country of export. As such, the CVD of 5% will be applicable in respect of all the goods covered under Notification 1/2011-CE dated 01.03.2011 and 1% rate will not apply.
The ready-made garments sector had several doubts, some of which are now clarified.
S. No | Issue/Query | Clarification |
|---|---|---|
1. | Who needs to register for this levy? Is it the brand owner or the job-worker? | The Central Excise Rules have been amended to prescribe that the person who gets the goods falling under Chapters 61, 62 or 63 (heading 63.01 to 63.08) manufactured on his own account on job work shall pay the duty leviable on such goods as if the goods were manufactured by him. It is evident, therefore, that the brand name owner (and not the job-worker) is required to register and comply with all the provisions of Central Excise law. It is relevant that the brand name owner has been given the option to authorise his job-worker to pay the duty leviable on the goods. If such an authorisation is given, it is the job-worker who would have to obtain registration. |
2. | If a unit manufactures goods bearing the brand name of another person out of inputs or raw materials which have been purchased independently and not supplied by the brand owner, will the unit be eligible for treatment as a “job-worker”? If not, would it be required to register? | Such a unit does not satisfy the definition of “job-worker” contained in the Explanation to Rule 4(1A). It is not enough for a job-worker to manufacture goods or to undertake a process on behalf of and under instructions of the brand owner. The inputs or goods should also have been supplied by the brand owner or by a person authorised by him. Such units would, therefore, have to obtain registration and discharge the duty liability. |
3. | The retail sale price is not disclosed to units mentioned at S.No (2) above by the brand owner. In such case what would be the tariff value for payment of duty? | Notification has been issued to provide that where goods are cleared from the manufacturer to the brand owner in the course of sale and they do not bear the RSP, the transaction value under section 4 would be deemed to be their tariff value. |
4 | Many small units manufacture ready-made garments for brand owners and clear them without affixing any brand name. Will such units be required to register? | Where no brand name is affixed on such goods, when cleared by the manufacturer, he is not required to register as the levy is only on goods bearing a brand name or sold under a brand name. As and when the brand owner affixes the brand name on such goods, he would be required to pay excise duty. |
5. | Many units manufacture branded ready-made garments exclusively for export or pre-dominantly for export. Would they be required to register? | Normally, units manufacturing exclusively for export would also clear some goods for home consumption either as rejects, seconds or waste. To the extent, the value of clearances for home consumption of the manufacturer/unit is within the eligibility limit (of Rs.4crore in the previous financial year), benefit of SSI exemption would be available up to a value of clearances of Rs.1.5crore in the current financial year. The condition that would have to be fulfilled is that the goods cleared for home consumption should either be unbranded or bear the brand name of the manufacturer himself. If these conditions are fulfilled, the unit would not be required to register till the exemption threshold is crossed. However, if the goods cleared for home consumption bear the brand name of another person, neither the benefit of SSI exemption nor exemption from registration would be available. |
6. | Would units referred to at S.No.5 be eligible for the simplified export procedure? | Yes. Since they would avail of the benefit of the SSI exemption i.e. an exemption based on the value of clearances, they would be eligible for the simplified export procedure. |
7. | What is the value for computing the turnover for the purposes of SSI exemption? Would it be the Retail Sale Price, wholesale price or the tariff value? | Value for computing the eligibility as well as the exemption limit for purposes of SSI exemption is defined in Explanation (C) to Notification No.8/2003-CE dated 1 st March, 2003. Accordingly, it would be the tariff value of the goods. |
8. | Would SSI exemption be available to a manufacturer/ unit for goods falling under Chapters 61, 62 or 63 for the full exemption limit of Rs.1.5crore for the month of March, 2011? Or, would this limit be applied on a pro-rata basis for one month i.e. Rs.12.50 lakh? | In the absence of a provision in the SSI notification to curtail the exemption to Rs.12.5 lakh for March, 2011 benefit upto the full exemption threshold of Rs.1.50crore would be available for clearances for home consumption made in March, 2011. Of course, the conditions of the notification would have to be fulfilled. |
9. | How would the eligibility for SSI exemption be computed for the financial year 2011-12? | As stated above, the eligibility for availing of the SSI exemption in 2011-12 is that the value of clearances for home consumption from one or more manufacturer from one or more units should not have exceeded Rs.4crore in the financial year 2010-11. The computation for this purpose should be done in accordance with the provisions of para3A of notification no.8/2003-CE. For this purpose, a certificate from a Chartered Accountant based on the books of accounts for 2010-11 may be accepted. |
10. | What is the status of Finished Goods in the factory/warehouse as on 28.2.2011? Will goods produced before 28.2.2011 but lying in the warehouse attract duty? Are the manufacturers required to submit stock Declaration? | Excisable goods which were produced on or before 28.2.2011 but lying in stock as on 28.2.2011 would attract excise duty upon clearance. However, such goods as had already been cleared from the factory of the manufacturer at Nil rate of duty on or before 28.2.2011 but are lying in the warehouse/ private store room for further sale would not be chargeable to the duty of 10% once again. Manufacturers would be required to submit a stock declaration of finished goods, goods- in- process and inputs as on 28.2.2011. Submission of such stock declaration would not only be for the purposes of payment of the excise duty but also for enabling the manufacturers to claim Cenvat credit on inputs or inputs contained in goods lying in stock as already provided for in rule 3(2) of the Cenvat Credit, Rules, 2004. |
11. | Can manufacturers claim Cenvat credit of excise duty paid on inputs | Manufacturers can claim Cenvat credit on inputs as per the provisions of the Cenvat Credit Rules,2004 |