Notification No. 67/95-CE; Clearances to SEZ not Eligible for Exemption? Strange Interpretation!!!
AS we all know, Notification 67/95-CE exempts goods captively consumed within the factory in the manufacture of dutiable goods. Now when goods are cleared to SEZ units, no duty is paid. Does this mean that the manufacturer has to pay duty on the captive consumption as he is ineligible for the benefit of 67/95?
In a recent RAC meeting an assessee raised a query, the substance of which is: They are manufacturers of bulk drugs during the manufacture of which two intermediary dutiable products emerge. When they clear the final products for home consumption, the intermediary products are exempted under Notification No. 67/95 dated 16.03.1995. But when they clear the final products to an SEZ, the department is demanding duty on the intermediary products. Supplying to SEZ has become a liability.
Clarification: The Chief Commissioner informed that the duty of excise is exempted on the excisable goods manufactured and consumed captively within the factory of production of manufacture when duty of excise is discharged on the final products, as per the provisions of Notification No. 67/95 CE dated 16.03.1995. However, when final products are cleared
i. to a unit in FTZ or
ii. to a 100% EOU or
iii. to a unit in EHTP or
iv. to a unit in STPI or
v. under Notification No. 108/95 CE dated 28.08.1995 or
vi. by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in Rule 6 of the CENVAT Credit Rules, 2004
no duty of excise is payable on the goods captively consumed even though final products are cleared without payment of duty. The clearances for which the benefit of captive consumption is extended, does not include the clearances made to SEZ units. So, from this view point, duty is required to be paid. On the other hand it would appear that in the light of Rule 6(6 )(i) of Cenvat Credit Rules 2004, there is no obligation under Rule 6 for clearances to SEZ. Therefore the Chief Commissioner informed that Accountant General Audit has also raised objection on this issue and the department has contested the objection. As a result Show Cause Notices are transferred to call book.
They don't collect duty when goods are cleared to SEZ units - not because the goods are exempted, but because the goods are treated as exports. When that is the position, what is the problem in allowing the benefit of Notification No. 67/95? Is this the way the Government wants to encourage the SEZ scheme? Isn't the Government supposed to encourage clearances to SEZ instead of punishing those who do?
This is not an isolated case. The Department is spreading it fast throughout the country. In the Monthly Audit Bulletin for June 2013 circulated by CBEC's DG, Audit, the following objection was circulated:
Irregular availment of benefit of Notification No.67/95 - CE dated 1.3.1995, on clinker used as input in the manufacture of cement cleared without payment of duty to a unit in Special Economic Zone: The assessee is manufacturers of PPC Cement, OPC Cement and Clinker, falling under Chapter sub-heading Nos. 25232930, 25232910 and 25231000. During the course of audit it was observed that during the period from October 2011 to October 2012, the assessee cleared 2735 MTs of cement to M/s. Dr.Reddy's Lab, a unit in Special Economic Zone, without payment of Central Excise duty, under Rule 30 of SEZ Rules, 2006. Clinker used captively in the production of cement is exempted vide Notification No.67/1995 dated 16.03.1995 subject to the condition that final product is not exempted. This condition is relaxed in respect of clearance of final product to a 100% EOU, a unit in Software Technology Park, Electronic Hardware Technology Park and supplies made under Notification No.108/95, dated 28.08.1995 or by a manufacturer of dutiable and exempted final products after discharging the obligation in Rule 6 of the CENVAT Credit Rules, 2004. The audit pointed out that clearance of cement by the assessee to a SEZ is not covered under the aforesaid condition. Hence, Central Excise duty of Rs.7,04,352/- is payable on 2543.55 MTs of clinker used captively in the manufacture of cement cleared to a unit in a SEZ.
So, now all Commissionerates are required to instigate Show Cause Notices in such cases. In this very case of clinker, the CESTAT had given total waiver of pre-deposit in these cases.
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In Sujana Metal Products case , the Tribunal had held that in view of the overriding effect of Section 51 of the SEZ Act, the supplies made by DTA units to SEZ units will amount to export for the purpose of all export benefits.
Very recently in the Reliance Ports case - , Tribunal in a Service Tax case held, " Sec. 51 of the SEZ Act also makes an over-riding provision that SEZ Act shall have effect even if there is anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any other law"
08.01.2013 had covered this issue in detail.