The Little Known Third Schedule - Is it Needed?
DO you know that the Central Excise Act has three Schedules? The First Schedule was the Central Excise Tariff and with the Tariff Act in 1986, this First Schedule was omitted. But the Second Schedule continued without a first one. The Second schedule actually deals with tobacco and should have been deleted long before the Tariff Act came into force. But it merrily continues in the statute. And in 2003, a new schedule christened as Third Schedule was inserted. When there is no first schedule, why can't they at least re-number these schedules? There is no first schedule, the second schedule is irrelevant and what is the sanctity of the Third schedule?
The Third Schedule gets its right to exist from section 2(f) (iii) of the Central Excise Act, which defines manufacture as, "manufacture" includes any process,-
(i) Xxxxx
(ii) Xxxxxx
(iii) which, in relation to any goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.
So, for the products listed in the Third Schedule, packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, would amount to manufacture.
Why the Third Schedule? The Memorandum to the Finance Bill 2003 as well as the letter from JSTRU states, "Section 2(f) of the Central Excise Act is being amended so as to provide that for goods presently covered under the provisions of Section 4A, any process of packing, re-packing, labelling or re-labelling of goods, putting them into unit containers or any subsequent declaration of RSP on goods or alteration thereof, shall amount to manufacture."
But the amendment to Section 2(f) as extracted above made no mention of Section 4A, but it created a list called the Third Schedule.
So, now we have two lists, one under the Third Schedule and one under a Notification issued under Section 4A. The current notification is 49/2008-CENT, dated 24.12.2008. For some time, the lists under the Third Schedule and the notification were identical, but somewhere down the line, the CBEC lost track and the two lists went their different ways.
The confusion they created in 2003 is still haunting them. Even the Board is not sure as to the two lists and for that matter sometimes they forget the Third Schedule. Sometimes they are not clear as to whether the Third Schedule is to the Central Excise Act or the Central Excise Tariff Act. In fact, they carried this ignorance to Parliament. In the 2011 Finance Act, they got Parliament to amend the "Third Schedule to the Central Excise Tariff Act". DDT pointed out this blunder in and they got it retrospectively amended in a complicated amendment in the 2012 Budget.
There is really no need for this confusing Third Schedule, which appears to be there in the statute only to confuse - more the departmental officers than the assessees.
This merry-making by the Board was elaborately dealt with by the CESTAT in the recently reported case of Larsen & Toubro 2015-TIOL-2561-CESTAT-MUM in the context of manufacture vis-à-vis valuation of parts and components of automobiles/vehicles etc. Please refer paragraphs 14.6 to 14.10 of the judgment.