Confusing, Complicated and Controversial Notifications
ON Friday, the Board issued three Central Excise Notifications apparently to correct some earlier mistakes, but ending up making more mistakes and creating confusion and possible litigation. The tabulation below shows the changes that the trio "deadly Friday" notifications seek to make on manufacturers who were till now basking under exemption or concessional rates of CE duty.
Existing | Amendment |
|---|---|
Notification 30/2004-CE: This is an exemption for certain textile articles | |
Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs has been taken under the provisions of the CENVAT Credit Rules, 2002 | Provided that the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004.". |
Notification 1/2011-CE; This notification prescribes an effective rate of 2% duty on certain goods | |
Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the CENVAT Credit Rules, 2004. | Provided that the said excisable goods are manufactured from inputs or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004." . |
Notification 12/2012-CE condition 16: This is an exemption for certain goods either wholly or partly - steel, Aluminium, Tablet Computer, Mobile handsets | |
If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 has been taken in respect of the inputs or capital goods used in the manufacture of these goods . | If the said excisable goods are manufactured from inputs or capital goods on which appropriate duty of excise leviable under the First Schedule to the (where is Central?) Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs or capital goods has been taken by the manufacturer of such goods (and not the buyer of such goods) under rule 3 or rule 13 of the CENVAT Credit Rules, 2004."; |
Notification 12/2012-CE condition 20 Clause (a): This is an exemption for certain goods - copper | |
(a) no credit of duty paid on inputs under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 has been taken; | the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004;"; |
Notification 12/2012-CE condition 25: This is an exemption for certain goods - fertilisers, goldsmith wares | |
If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004, has been taken in respect of the inputs or input services used in the manufacture of these goods. | If the said excisable goods are manufactured from inputs or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004." ; |
Notification 12/2012-CE condition 52A: This is an exemption for certain goods - bunker fuels, solar water heater, | |
If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004, has been taken in respect of the inputs or input service or capital goods used in the manufacture of these goods. | If the said excisable goods are manufactured from inputs or capital goods or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or capital goods or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004.". |
The core idea in these amendments seems to be -
+ Insist that the inputs/capital goods which are used for manufacture of excisable goods on which the manufacturer seeks to claim Nil rate of duty or 2% duty or any other concessional rate of duty under the amended notifications should be such on which "appropriate duty has been paid", be it Central Excise duty or the Additional duty of Customs;
+ Insist that the input services which are utilized for manufacture of excisable goods on which the manufacturer seeks to claim Nil rate of duty or 2% duty or any other concessional rate of duty under the amended notifications should be such on which "appropriate service tax has been paid".
+ That the manufacturers claiming the exemption notification 30/2004-CE, 1/2011-CE or 12/2012-CE [condition numbers 16, 20(a), 25, 52A] in respect of these excisable goods should NOT avail CENVAT credit of duty/tax paid on inputs, capital goods, input services.
+ Clarification is provided that the non-availment of CENVAT credit condition is in respect of the manufacturers of these excisable goods and NOT THE BUYERS of such goods.
The said amendments are going to topsy-turvy the business projections of a large and diverse section of manufacturers belonging to the following trade - readymade garments, Mobile phone, Notebooks, Spectacles, Calculators, Water filters, Sauces and ketchups, Bicycles, etc.
How could the Government do this and put to naught their much publicized "Make in India" campaign?
Till the other day, if the manufacturer did not avail CENVAT credit of the duty paid on inputs/capital goods and input services, either under Rule 3 or Rule 13 of the CCR, 2004 that was enough.
There was no requirement that the inputs/capital goods and input services were duty/tax paid - no evidence was to be produced. Obviously, everything purchased from the market is deemed to be duty paid, goes the adage.
Now, these manufacturers would be required to be in possession of duty paid invoices and tax paid invoices even though the fact remains that they would not be claiming ANY CENVAT credit.
Even if the amendments do not say so in EXPLICIT terms but the fact of the matter is THIS is the REALITY. At least the AUDIT groups would be a happy lot, CERA included.
The Apex Court in the case of Dhiren Chemical Industries held -
6. An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words "has already been paid". For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the "appropriate" or correct rate. Unless the manufacturer has paid, the correct amount of excise duty, he is not entitled to the benefit of the exemption notification.
7. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material the notification will not apply.
8. The notification is intended to give relief against the cascading of excise duty - on the raw material and again on the goods made therefrom. There is no cascading effect when no excise duty is payable upon the raw material and the hardship that the notification seeks to alleviate does not arise.
The Central government probably remembered this ruling after nearly a decade (counting from the notification 30/2004-CE) and has put it to cataclysmic use.
Now, these manufacturers would be either required to get hold of suppliers/service providers who pay duty/tax and if unsuccessful forego the benefit of these exemption notifications.
Welcome Make in India.
But, then, anything sourced from the open market is "deemed to be duty paid" - Agreed, but you need to be in possession of the duty/tax paying documents even though you will not be availing any CENVAT credit.
The Larger Bench of the Tribunal in the case of Arvind Products Ltd., Vishal Fabrics & 2 Others - () had held thus -
CE - Apparent conflict between Condition-3 & Explanation-II of Notf.No.14/2002-CE has to be resolved by adopting a harmonious construction & understanding the intention of the legislature - if the views of the Revenue are accepted then it will lead to chaos and absurdity - fabric received for processing has to be considered as 'deemed duty paid' & actual duty payment nature is not to be established: LB CESTAT.
Nonetheless, the fact remains that in the said notification there existed an Explanation II which read -
Explanation -II - For the purposes of the conditions specified below, textile yarns or fabrics shall be deemed to have been duty paid even without production of documents evidencing payment of duty thereon.
No such explanation lurks in the subject notifications sought to be amended by the deadly trio.
All said and done, the condition imposed is nothing short of Mission Impossible for these manufacturers. And mind you, this notification has already come into effect last Friday.
The Government should have at least taken the trouble of issuing a "draft notification" before making the last Friday a BLACK Friday and gauged the reaction from the Trade.
This is what is called the Trade DISCONNECT.
By the way, the clarification that the non-availment of CENVAT credit condition is for the manufacturer and NOT THE BUYER is what has left us PERPLEXED. Probably it was an ingenious CERA objection!
Perhaps the apt route the Board should have taken is to at least come out with a CIRCULAR explaining the notifications issued on BLACK FRIDAY.
Or has that already been issued but not yet publicized?
Notification No., Dated: July 17, 2015, Notification No., Dated: July 17, 2015 and Notification No., Dated: July 17, 2015