North East Exemption - Changing Views of the Goverment -Lack of Consistency

By Vijay Kumar

Notifications -Central Excise

The notifications 32/1999 and 33/1999 covered goods cleared from units located in growth centers, Integrated Development Centers, Industrial parks and also applied to specified goods of factories in North East i.e. in areas other than thrust areas.

It is pertinent to note that the Industrial Policy NEIP 1997 described only industrial activity and also that in Notification 33/1999 goods of various industries such as Fruits and Vegetable Processing, Meat and Poultry Products Cereal Based Foods, Consumer Industry, Milk and Milk products, Food Packaging etc were covered for exemption.

The Notifications did not contain any definition, on what activities were considered exempted and therefore if goods arose out of manufacture as defined in the Central Excise Act, they were eligible for exemption.

The units in North East obtained eligibility certificates which were issued after due verification of process and other documents. The units commenced production and enjoyed exemptions.

North East Industrial Investment and Promotion Policy 2007 (NEIIP 2007)

The Government of India Ministry of Industry and Commerce announced NEIIPP on April 1, 2007 .This policy included in its fold the 1997 scheme policy but clubbed Sikkim policy with it. Consequently the Industrial policy for Sikkim issued in 2002 and other related concessions were discontinued effective April 1,2007.

Value addition Clause in Policy

NEIIPP 2007 contains a clause on value addition which was not there in the 1997 policy and this elucidates that in order to ensure genuine industrial activity, peripheral activities like preservation during storage, cleansing operations, packing, repacking, labeling or relabelling, alteration of retail sale price are to be excluded from benefits of NEIPP 2007.

The policy NEIIPP 2007 also contains an express statement of intent, in which the policy commits “Industrial units which have commenced production on or before 31/3/2007 will continue to get benefits /incentives under NEIP 1997”.

Notifications 20/2007 and 21/2007 (Central Excise)

To give effect to the policy NEIIP 2007, the Government of India, vide Notification 20/2007 dated 25 April 2007 - CE brings in the concept of value addition as a restriction and adds that the peripheral activities as described in the policy will not be entitled to exemption.

The intention of the Government is fully justified as the new policy raises such intent and the government has the right to change the course of incentive schemes being implemented.

The catch lies in Notification 21/2007 dated 25 April 2007 wherein the Government has amended Notification 32/1999 and 33/1999 functioning or issued for giving effect to NEIP 1997

The government has has proposed two major changes which are

a) Sunset dates or closure dates have been incorporated in the Notifications 32/1999 , 33/1999 which is 31 March 2007.

b) Value addition has been inserted as mandatory in the Notification 32 and 33of 1999. In other words the Notification describes the peripheral activities and denies exemption for them The peripheral activities listed in the NEIIP 2007 have also been incorporated in NEIP 1997 though it appears from a reading of NEIIP 2007 that value addition restriction will be applicable for new Notification 20/2007 (Central excise )

Unreasonable amendments to Notification 32/1999 and 33/1999

The amendment have in one stroke withdrawn excise exemption in respect of units in North East for activities which the Industrial Policy 2007 describes as peripheral and is unreasonable for the following reasons

1) The Central Excise Act defines manufacture to include repacking or packing, labeling or relabelling of goods in unit containers in respect of goods mentioned in the Third Schedule to the Act.

2) The NEIIP 2007 expressly provides that the existing benefits under NEIP 1997 will continue to be unaffected.

3) The Government held out a promise of exemption and the units have enjoyed the excise exemption for over 6 years and hence if withdrawn, they will be inviting attention of the Courts to Doctrine of Promissory Estoppel.

4) Any change of view on the existing notification (32/1999 and 33/ 1999) will have to be accompanied by a window period during which the manufacturers may be given the right to make changes to their manufacturing process which will enable them to qualify for the exemption.

5) Para 5 added to Notifications 32 /1999 and 33/1999 needs to be more specific as to what other processes would amount to manufacture as the ambiguous clause will only add to the huge waiting list of litigation.

Conclusion

It is fervently hoped that the Government will give an empathetic consideration to this unintended error and restore Notifications 32/1999 and 33/1999 to status quo ante as regards value addition alone.

In case the Government opines strongly on the issue it can alternatively, provide a window of opportunity to the units, industries in the North East to make necessary changes to their manufacturing process so as pass the value addition test which will enable them to enjoy the exemption as promised in 1997 Policy statement and Notification. This however will have to be accompanied by certain guidelines which will have to be issued by CBEC on value addition and processes which constitute manufacture for the exemption notifications.

In case the Government succeeds in pushing this amendment through without considering the above requests of the small units in North East, it will be yet another glaring example of the Indian maxim “The King is above the law”.

(from material sent in by a concerned netizen)