Notification 67/95-CE; Clearances to SEZ not Eligible for Exemption? Strange Interpretation By CE Officers
WE have been highlighting in these columns the harassment meted out to Indian Industry through frivolous Show Cause Notices and non-application of mind in confirmation of demands. The other day, we received a frenetic phone call from an assessee, seeking a clarification from us as to whether he was eligible for exemption under Notification No. 67/95-CE for intermediate products used in captive consumption for manufacture of final products cleared to SEZ. We replied with an emphatic ‘Yes', but the assessee confronted us with a notice demanding Rs. 3 Cr. of duty issued to a Cement Industry in the zone denying exemption under Notification No. 67/95 -CE for the clinker used in the manufacture of cement cleared to SEZ. We came to know that this is also the view shared by the departmental audit officers of the zone. It may appear strange, but this is how the department sought to interpret the said exemption notification:
Notification No. 67/95-CE dated 16.03.1995 as amended provides exemption from payment of whole of the Central Excise duty on the specified inputs manufactured in a factory and captively consumed within the factory of production in or in relation to the manufacture of specified final products provided the final products are cleared on payment of duty. This means, duty is payable on the inputs/intermediate goods, which are captively consumed in the manufacture of final products, which are fully exempted from payment of duly or chargeable to ‘Nil' rate of duty.
However, in the notification, exception is given to those goods, which are cleared:
(i) to a unit in Free Trade Zone, or
(ii) to a Hundred Percent Export Oriented Undertaking, or
(iii) to a unit in a Electronic Hardware Technology Park, or
(iv) to a unit in a Software Technology Park, or
(v) under Notification No. 108/95-CE dt. 28.08.1995, or
(vi) by the manufacturer of dutiable and exempted final products after discharging obligation prescribed in Rule 6 of Cenvat Credit Rules, 2004
The raw materials used in the manufacture of Cement are Limestone, Bauxite, Gypsum etc. During the course of manufacture of cement, “Clinker” emerges as an intermediate product, which is an excisable product. Clinker is either consumed captively in the manufacture of final product “Cement” or cleared on payment of duty. Clinker merits classification under CHSH 23231000 of the schedule to the Central Excise Tariff Act 1985.
During the course of audit, it was observed that M/s xxxxx have cleared certain quantities of Cement at “Nil” rate of duty to SEZ units. The clearances to a unit in SEZ is not notified as exception under the Notification No. 67/95-CE dated 16.03.1995 and hence it appears that the assessees are liable to pay central excise duty on the intermediate goods viz., “Clinker” used in the manufacture of cement, cleared to SEZ units without payment of duty.
A simple application of mind by the officers in the field would have saved the time and money of both department and the assessee. It is strange to know that the officers holding highest position in the department are not aware that the clearances to SEZ are nether ‘exempted' nor chargeable to ‘Nil' rate, but are ‘exports' allowed to be cleared without payment of duty. Such clearances to SEZ are even eligible for sanction of rebate on par with exports. The exemption under captive consumption notification is not available only in cases where final products are ‘exempted' or ‘chargeable to Nil rate' and clearances to SEZ do not fall under these categories.
The word FTZ is being continued in the notification No. 67/95-CE as a vestige of the past horrors, as there are no FTZs functioning in the country after enactment of SEZ Act.
But, who can put these simple facts into the minds of adjudication officers, when they have decided not to apply mind at the time of issuance of demands. All these notices are routinely confirmed for fear of review, and we have a recent CBEC circular to initiate coercive measures to realize dues, without even giving one opportunity for the assessee to be heard by the appellate forums.
We do not know if the field officers in other parts of the country also hold similar view, with regard to SEZ clearances;we hope CBEC would take stock of these frivolous demand notices issued and save industry from this kind of harassment.
In our Budget Run-up, last year, former Commissioner, Somesh Arora had suggested for removal of reference to (Free Trade Zone) in all old but existing Customs and Excise Notification and mention of ‘Special Economic Zone' through appropriate amendment. But ‘free trade zone' has a free run in the statutes.