Premature withdrawal! Notification 108/95-CE: Is the Board's clarification on the retrospective status of the explanation valid?
It may be recalled that in DDT 905 , the scope of amendment to Notification No. 108/95-CE dated 28.08.1995 by Notification No. 13/2008-CE dated 01.03.2008 and the CBEC's clarificatory letter FNo.101/7/2008- CX-3 dated June 12, 2008 issued to the field formations was extensively discussed. We also highlighted the two schools of thought on the applicability of this amendment and the status of the explanation.
One school viewed that the exemption is available as long as the goods are not withdrawn from the project till the completion of the project.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project of laying a Highway funded by the international organization, the exemption is available even if the Roller is withdrawn after the completion of the project. While the other interpreted the 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the goods supplied should form part of the project permanently and the exemption is not applicable if the goods are withdrawn even after the completion of the project. We also drew the netizens attention to an article from one of our esteemed contributors - Premature withdrawal
Let us quickly take a recap of the Board's letter issued to the field recently in F.No.-3. In the clarification letter dated June 12, 2008, Board had clarified that the exemption would be applicable only when goods supplied to the project become a part of the project permanently and not for t he goods which are used by the contractors for execution of the project and after completion of such project, the said goods are not diverted by the contractors, for further deployment in other projects. It was further clarified that this amendment is purely clarificatory and therefore has retrospective effect.
Is it as simple as the Board wanted it to be? Well! The controversy refuses to die. In a recent mail to DDT, an enlightened netizen questioned the validity of Board's claim on the retrospective status of the new explanation added to the Notification from a different perspective. He wrote in:
"By virtue of sub section 2A to Section 5A of the Central Excise Act, 1944, if there is any expediency or necessity to clarify the scope or applicability of any notification issued under sub section (1), the Central Government shall insert an explanation in such notification at any time within one year of issue of the said notification and such explanation shall have effect as if it was always a part of the original notification.
In the light of the above, it is clear that explanation-2 added to the Notification No.108/95-CE dated 28.08.1995 is effective only from 01.03.2008 as the said explanation was inserted vide Notification 13/2008 CE dated 1.3.2008 during the course of budget 2008".
While parting, he asked us to take a relook into this controversy – which we do as a responsible and responsive watchdog.
After studying the provisions of Section 5A (2A), which mandates that the Government ought to insert an explanation to clarify its intentions within one year from the date of issue of the original notification and applying this to the facts of the current amendment and the follow-up clarification, it is felt that the observation of the netizen is indeed absolutely correct.
The Notes on Clauses to the Finance Bill 2002 by which the new Sub section 2A to section 5A was introduced, states,
Clause 128 seeks to amend section 5A of the Central Excise Act, so as to empower the Central Government to issue the notification or order to clarify the scope or applicability of any exemption notification or order issued under this section within one year from the date of issue of the notification or the order.
Of course, the then JS,TRU, who gave his customary explanation of the budget, forgot about the one year period, when he stated,
Another important change is that the Government will now be permitted to explain or clarify the scope of an exemption by issue of an explanation by a notification, which will be effective from the date of the first exemption notification itself.
In the instant case, the explanation is inserted after 13 years which is clearly beyond the mandated (empowered) one year. Then obviously it will not have a retrospective effect in terms of Section 5A (2A) and would be effective only from the date from which it is inserted.
Will anybody hazard a guess on the status of Board's recent missive to the field formations through letter dated June 12, 2008 and the follow-up show cause notices issued by the field formations based on this letter? Well, it will only enrich the consulting fraternity and they should thank the Board for coming up with such unreasonable clarifications.
All the assessees who are stuck with notices from the Department will have to simply point out Section 5A (2A) and plead that the amendment to Notification No. 108/95 does not have retrospective effect as it was not issued within one year of the original notification.
Concluding, DDT once again raises the fundamental question about the slackness with which the Board goes about drafting important pieces of subordinate legislations.