EOUs - caught in the dichotomy of "exempted" and "non excisable" goods.
A 100% EOU is engaged in manufacture and export of excisable goods. It also clears some of these goods in DTA. But the goods cleared in DTA are exempted under Customs and Central Excise Acts. It also avails Cenvat Credit on some of the raw materials which are procured on payment of Central Excise duty for manufacture of dutiable and exempted goods. Needless to say the EOUs are entitled for Cenvat Credit on the duty paid raw materials w.e.f. 6-9-2004 ( Notification No. 18/2004-C.E. (N.T.), dated 6-9-2004).
The question is in respect of goods cleared in DTA which are exempted from both BCD and CVD, whether the EOU has to pay the duty foregone on the raw material procured duty free? Or pay 10% on the sale price of the exempted goods in terms of the Cenvat Credit Rules in view of taking credit on some duty paid inputs? Or Both?
Para 6.8 (j) of the Exim Policy reads " In case of DTA sale of goods manufactured by EOU/EHTP/STP/BTP, where basic duty and CVD is nil, such goods may be considered as non-excisable for the purpose of payment of duty".
In terms of the above para, the goods cleared in DTA are to be considered as non- excisable if the basic customs duty and CVD are NIL. Now, let us see the provisions of exemption notifications which allow the EOUs to obtain the raw materials without payment of Customs / Excise duty:
Second proviso to para 6 of the Notification 22/2003 CE(NT) Dated 31.3.2003 reads:
Provided further that where such articles (including rejects, waste and scrap materials) are not excisable, duty foregone equal in amount to that leviable on the inputs obtained under this notification and used for the purpose of manufacture of such articles, which would have been paid but for the exemption under this notification, shall be payable at the time of clearance of such articles.
A similar proviso is also found in Notification 52/2003 Dated 31.3.2003.
If the goods cleared by EOU in DTA are exempted from both Customs and Excise duties, the EOU has to pay the duties foregone ( both customs and excise) on the raw materials procured as per the proviso to the relevant Notifications as the same are non excisable under Exim policy.
With effect from 6.9.2004, the EOUs are also entitled for Cenvat Credit. So the provisions of Rule 6 of Cenvat Credit Rules are also applicable.
In terms of the said Rule, if a manufacturer is engaged in manufacture of both dutiable and exempted goods, and no separate records are maintained, an amount of 10% has to be paid on the price of the exempted goods.
As a result, in the above case, the EOU has to
1 Pay back the duty foregone on the raw material used in the manufacture of exempted goods as these are to be considered as "non excisable" under Exim Policy and also
2 Pay 10% amount on the sale price of the exempted goods under Rule 6 of the Cenvat Credit in view of taking credit on some of he raw materials used in the manufacture of "exempted goods".
Apparently there is no uniformity in the Exim Policy, Notifications and the Cenvat Credit Rules as the "same goods" can not be considered as non-excisable for the purpose of exim policy and exempted for the purpose of Rule 6 of Cenvat Credit Rules.