Notification 108/95 CE – No exemption if the goods are supplied for temporary use – Board clarifies.
Notification 108/95 CE dated August 28, 1995 provides exemption from whole of the excise duty if the goods are supplied to the projects financed by the United Nations or an international organization. This notification is in the news after this year’s Budget because of an explanation inserted vide Notification 13/2008 CE dated 1.3.2008. This explanation reads as under:
Explanation 2.-For the removal of doubts, it is hereby clarified that the benefit under this notification, in the case of goods supplied to the projects financed by the United Nations or an international organisation, is available when the goods brought into the project are not withdrawn by the supplier or contractor and the expression "goods are required for the execution of the project" shall be construed accordingly.
This explanation has stirred a hornet’s nest as it triggered divergent interpretations. Some viewed that the exemption is available as long as the goods are not withdrawn from the project till the completion of the project. This means if a Road Roller is supplied for the project of laying a Highway funded by the international organization, the exemption is available even if the Roller is withdrawn after the completion of the project.
Please see a related article Notification : Premature withdrawal!
But some interpreted the above explanation to mean that the goods supplied should form part of the project permanently and the exemption is not applicable if the goods are withdrawn even after the completion of the project. So the confusion continued and finally the Board has stepped in to explain the explanation. Board has issued a letter to the field (not meant for the trade? Why not a Circular instead of a letter on such important clarifications?) clarifying that:
The purpose of this notification is to enable the optimum utilization of funds provided by United Nations/ International Agencies. The exemption was meant to be applied only to goods procured with the project funds and actually used and consumed in the core activity of the project. In the case of equipments purchased by contractors independently, after completion of the project, the contractor re-allocates the equipment for other commercial use.
Therefore, it is clarified that the exemption is meant only for the goods which become part of the project on permanent basis and not for the goods which are used by the contractors for execution of the project and after completion of the project, the goods remain with the contractors, being owners of such goods for further deployment in other projects.
The amendment is purely clarificatory in nature and states the position that always meant to be.
So, no exemption if the goods do not become part of the project on permanent basis. The good Board says this clarification is the position it was always meant to be. So this is effective from 1995! The exemption is extended based on the certificate issued by the project implementing authority. Once a certificate is issued, it does not lie in the mouth of revenue to dishonour the same (). For 13 years, the exemption has been extended based on the certificates issued and now the Board says the same is not applicable if the goods are withdrawn from the project. Really a tough time for the field as they have to explore the possibilities of invoking suppression and raise demand for 13 years. And no limitation?
Why can’t the Government be a little more careful in drafting the exemption Notifications? Even today, the Notifications are issued without correctly assessing the impact of the same. A recent notification relating to duty on Gutkha has been drafted in such a way that the Higher MRP product attracts less duty than the lower MRP product.
May be it is time to explore the possibility of outsourcing the drafting of Notifications.
Our article referred to above had suggested, “contractors have no other option but to build a museum in the respective sites, after completing the project and keep all items procured without payment of duty of excise, for execution of the project and make them a monument!