Why exemption from excise duty for EOUs?
IN - 06 07 2005, I asked a question:
Why exemption from excise duty for EOUs?
Notification No. 24/2003-C.E., dated 31-3-2003
exempts all excisable goods produced or manufactured in an export oriented undertaking from whole of duty of excise leviable thereon
Provided that the exemption contained in this notification in respect of duty of excise leviable under section 3 of said Central Excise Act shall not apply to such goods if brought to any other place in India;
What is the purpose of this notification? If goods are exported from EOU, which they are expected to do in the first place, there is no duty. If they are cleared in the DTA, they are required to pay duty. Then, why this exemption? Is it for captive consumption? What are the situations under which this exemption can be availed? Is there a single unit which has availed this exemption? Or is it standing in monumental isolation without serving any purpose?
I am yet to get an answer. In the meanwhile, recently a friend of mine who is a knowledgeable Central excise Officer tells me:
EOUs are allowed CENVAT credit on inputs and input services from the year 2004 onwards in terms of CENVAT Credit Rules, 2004 as clarified in Para 4 and 5 of Circular No.54/2004-Customs dt 13.10.2004. The accumulated credit can either be utilized for payment of excise duty on DTA clearances from EOU or refund of un-utilized credit could be taken as per the provisions/Notification issued under Rule 5 of CCR,2004 read with CBEC Circular No. 828/5/2006-CX.
It may please be seen that Notification24/2003-CE dt 31.3.2003 exempts all goods manufactured in EOUs, except those cleared into DTA. In other words, if an EOU does not have DTA sales, all goods manufactured by it are exempted goods. Consequently, the inputs and input services that go into manufacture of exempted goods in EOU become ineligible for credit as Rule 6(1) of CCR,2004 restricts the availment of credit only to the dutiable goods and no credit could be taken in respect inputs used in exempted goods.
It appears to me that contents of Notification No. 24/2003-CE read with Rule 6(1) of CENVAT Credit Rules, 2004 go against the spirit of the CBEC circulars mentioned above in extending CENVAT credit benefit to EOUs.
Goods manufactured in a 100% EOU are either exported or cleared into the DTA. In both the situations, there is no problem as exports are outside the purview of Rule 6(1) and for DTA clearances, duty is paid. The goods manufactured can also be captively consumed or destroyed. In case of captive consumption, the goods are actually cleared to a 100% EOU and so is outside the purview of Rule 6(1). Maybe in the case of destruction, some proportionate credit has to be reversed.
The problem still remains - why Notification No. 24/2003 at all?
You can read an interesting case on this issue in and the issue is still pending in the Supreme Court!