A Bouquet to Board - Notification 67/95-CE; Clearances to SEZ Eligible for Exemption - CBEC Sees Reason
FROM TIOL-DDT 2697 - 05 10 2015
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. We reported one such issue in 2013.
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 duty 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 DG, Audit of the Department noticed that an assessee 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 neither '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.
We had suggested in 2012 that references to "free trade zone" have to be removed and 'Special Economic Zones" inserted in all statutes, but Board allows such confusion in the statute to continue and then allows the Commissioners to create havoc in the field. Can you imagine several Commissioners actually held that the exception in Notification 67/95 is applicable for the non-existing FTZ and not the existing SEZ? Where has reason fled? Gurudev Tagore did not visualize IRS officers when he wrote about the clear stream of reason.
Recently the Chennai Bench of the CESTAT emphatically held that the assessees are eligible for exemption under Notification 67/95-CE on clinker captively consumed for manufacture of cement cleared to SEZ units/developers without payment of duty.
This was one of the issues discussed in the Central Excise Tariff Conference organised by the CBEC recently.
The Conference noted,
the issue has been decided by the Tribunal in case of M/s Ultratech Cement and other manufacturers where the Tribunal decided that benefit of exemption to intermediate products is available when the final products are supplied to SEZ. Hon'ble Tribunal noted that during the relevant period of dispute, no FTZ was in operation and therefore no clearance could be made to FTZ as this was a period after the enactment of SEZ Act on 10.02.2006. Once the SEZ Act came into effect from 10.02.2006, all the units functioning as FTZ were declared as SEZ units. notification no. 4/2003-CE, dated 30.03.2003 was issued to convert various FTZs into SEZs. Further, as per the Notes explaining clauses of the Finance Bill, 2007 (clause 106), after enactment of SEZ Act, FTZs have become redundant and hence it sought to amend subsection (1) of Section 3 of the Central Excise Act. By virtue of the above amendment, the word FTZ was omitted and substituted with the word SEZ in section 3 of the Central Excise Act, 1944. Consequently, tribunal concluded that now the expression FTZ in the notification no. 67/95-C.E. needs to be read as SEZ and the benefit of exemption extended to the intermediate goods when final goods are supplied to SEZ. Conference accepted this view and concluded that benefit of exemption should be extended to the intermediate goods when final goods are supplied to SEZ. Conference also recommended to the Board that notification no 67/95-C.E. should be amended to avoid litigation on the issue.
It is a matter of great relief that the conference saw reason and the Board accepted it. This is a problem faced by all units supplying goods to SEZ. Hopefully litigation on this issue will be closed.