EXEMPTION FROM EXCISE DUTY:

Transcription

1 CG EMPOWERED TO ISSUE EXEMPTION SEC 5-A EXEMPTION FROM EXCISE DUTY: 1 Write a brief note on the following exemption notifications issued under the CEA, 1944: i) Power to grant exemption from duty of excise u/sec 5A (3 Marks) Sec 5A of the CEA empowers CG to provide exemption in respect of any excisable goods Such exemption may be granted at any time in public interest The exemption may be granted in the following two modes: i) Exemption by issuance of notification in official gazette [Sec 5A(1)] : When exemption is to be granted in general (ie, to whole of public or a particular section of public), then exemption is granted by issuance of exemption notification in Official Gazette Exemption may be granted conditionally or unconditionally Such notifications are not applicable to 100% EOU unless otherwise exemption notification specifically mentions their applicability to them ii) Exemption by issuance of special order [Sec 5A(2)] :When exemption is to be granted to any particular person in a particular case, exemption is granted by issuance of special order in favour of that person Such an exemption is ad-hoc exemption which can be granted only when circumstances of exceptional nature exists to justify grant of such exemption Order granted such exemption is known as Ad-Hoc Exemption Order ** Author: Parameter General Exemption Ad-Hoc Exemption Circumstances when issued? Public Interest Public interest but under circumstances of exceptional nature How Issued? By notification in the Official Gazette By special Order in each case Whether available in public domain Yes Available on CBEC website No Not available in public domain Whether mandatorily required to be published in Yes [E-notification] No Official Gazette Author: Nature of Powers Customs Act, 1962 Central Excise Act, 1944 Service Tax (Finance Act, 1994) 1 Power to issue General Exemption notification Section 25(1) Section 5A (1) Section 93 (1) 2 Power to issue Ad-hoc Exemption Section 25(2) Section 5A (2) Section 93 (2) 3 Power to add explanation to notification explaining scope of notification [Note: This power can be exercised only within 1 year from the date of issuance of notification] 4 Guidelines for considering request for Ad-hoc exemption Circular No 460/04/2014-Cus [See below]** Section 25(2A) Section 5A (2A) Sec 83 of FA, 1994 read with Sec 5-A (2A) of CEA, 1944 The guidelines issued for Customs are used for issuing ad hoc exemption under central Excise tax law No such guidelines issued by so far Guidelines for claiming Customs exemption u/sec 25(2): [CBEC Circular] Cases for re-import of artifacts (an artifact is an object recovered by archaeological endeavor, which may have a cultural interest) and memorabilia (A souvenir / memento, keepsake, or token of remembrance is an object a person acquires for the memories the owner associates with it) representing India s historical, cultural and art heritage intended for public exhibition, could be considered for exemption, subject to recommendation for duty exemption by the Secretary, Ministry of Culture, Government of India Cases of import required for treatment of individuals, who are suffering from life threatening diseases, could be considered on case-to-case basis Such cases will be examined from the point of view of the nature of the medical condition and financial circumstances of the applicant Import of goods meant for relief and rehabilitation of people affected by natural disasters and epidemics could be considered for exemption subject to certain conditions Import of goods for free distribution by charitable institutions/organizations could also be considered for exemption subject to certain conditions Ad-Hoc exemption orders will be issued subject to the conditions that the imported goods will not be put to any commercial use and will not be sold, gifted, disposed of or used in any manner other than that specified in the order granting exemption The imported goods should be available for inspection by jurisdictional Customs/Central Excise officers as and when required 2 In Central Excise Law briefly explain the following terms: Ad-hoc exemption Discuss Sec 5-A(2) (refer above) [Nov Marks]

2 3 Whether exemption notification issued by CG can be withdrawn by CG at any point of time? Yes Power to issue exemption impliedly covers power to amend and withdraw exemption Time Bound Exemption: Whether it can also be withdrawn? Time less notification = It means that there is no time limit given in the E/N, and CG can terminate the notification any time Usually, it is done at the Budget time every year and scores of notifications are withdrawn Time bound exemption = Exemption with time limit attached to them (like, Goods exempted form ED for 10 years if manufactured a factory set up in specified area) DHARAMPAL SATYAPAL LTD SC Even a time-bound notification can be withdrawn if public interest so demands 4 Whether exemption issued under excise is available to 100% EoU also? NO Sec 5A (1) of the CEA, 1944 contains a proviso providing that Unless specifically provided in such notification, notification issued under Section 5A (1) shall not apply to excisable goods produced or manufactured in EOU, cleared for the home consumption In other words, while calculating the central excise duty payable for the goods manufactured by EOUs and cleared in domestic tariff area (DTA), exemptions are to be applied only if the notification specifically provides that this will also apply in case of excisable goods cleared by EOU etc Effective date of exemption notification (ie, date from which E/N shall come into force) As per provision contained in Sec 5A (5) of the CEA, 1944, every exemption notification (issued under sub-section (1) or (2A)) shall come into force on the date of its issue by the CG for publication in the Official Gazette unless otherwise provided in the notification itself Further, such notification are also required to be published and offered for sale on the date of its issue by the Directorate of Publicity and Public Relations, Customs and Central Excise, New Delhi, under the CBEC constituted under the Central Boards of Revenue Act, 1963 However, this provision of the law has become rather redundant as the Directorate of Publicity and public relation no longer publish and offer to sell the notification Further, the Government has started issuing E-gazette and making it available for free download and use by any one (website:wwwegazettenicin) EXEMPTION: MANDATORY OR OPTIONAL SEC 5-A (1A) Author In certain circumstances, assessee may prefer to pay duty instead of availing exemption For example, if the duty is not payable on final product, the final product become costlier as Cenvat Credit chain is lost and manufacturer is not able to pass on the incidence of input credit duty to its buyer Likewise buyer, if he is manufacturer, may not be able to avail Cenvat Credit, as he may not be having duty paid document Thus, in certain situation, assessee may prefer to pay duty instead of availing exemption In case of absolute exemption on any excisable goods, availment of such exemption by the manufacturer shall be compulsory whereas in other cases of exemption, it would be optional for the assessee to avail or not avail benefit of exemption Note: No parallel provisions exist in the Customs Act as well as in Service Tax law Thus, exemption under customs and service tax are optional 5 Comment on the following: (i) If any excisable goods are exempted from duty of excise absolutely, the manufacturer of such goods will be bound to avail of the exemption (1 mark) Sec 5-A (1-A) of the Central Excise Act provides that an exemption notification which is full and absolute (unconditional) shall be binding upon the assessee manufacturer and such manufacturer shall not have any option to ignore such exemption and pay duty thereon Thus, given statement is correct 6 XYZ Co is manufacturer of Product A and has been affecting clearances on payment of duty while availing cenvat credit on the inputs used in the manufacture of Product A An exemption notification** was issued on June 4, 2015 purporting to exempt Product A from excise duty However till 31/12/2015 XYZ Co continued to pay duty on its clearances and availed cenvat credit on the inputs

3 SCN was issued on 1/1/2016 requiring XYZ Co to reverse the cenvat credit availed on the clearances effected between 4/6/2015 and 31/12/2015 on payment of duty The reason for this according to the SCN was that no cenvat credit on inputs is available when the final product is exempt from duty Briefly examine with reasons whether the departmental stand in the SCN issued on 1/1/2016 is sustainable in law (3 Marks) As per the facts of the case, CG issued unconditional full exemption in respect of product manufactured by assessee Such exemption is mandatory under excise and thus, credit not admissible accordingly However, assessee continued affecting clearances of final product on payment of duty ignoring the exemption A SCN was served on the assessee on the ground that cenvat credit benefit should not have been taken by assessee in respect of inputs used in manufacture of final products from the day of issuance of exemption notification Rule 6(1) of Cenvat Credit Rules, 2004 bars availment of Cenvat Credit on inputs when used in manufacture of exempted goods Now, if despite the exemption, Cenvat is availed then Cenvat would be said to have been taken wrongly and thereby justifying service of SCN in terms of Rule 14 of Cenvat Credit Rules, 2004 The issue is whether specification of goods in the exemption notification would itself make the product exempted goods or the product becomes exempted only when exemption is claimed by the assessee Sec 5-A(1A) of the Central Excise Act, 1944 very categorically provides that availment of unconditional full exemption notification will be mandatory for the assessee leaving no choice with the assessee to ignore the exemption and pay the duty In light of the above discussion, it was mandatory on the part of XYZ Co to avail the benefit of exemption notification and not to avail any credit of duty paid on related inputs Thus, credit availed by them can be said to be wrongly availed and thus, SCN issued in terms of Rule 14 of CCR, 2004 for recovery of the same is valid Tutorial Note: So far as the duty paid on the clearances is concerned, refund shall be admissible of that duty in terms of Sec 11B of CEA, 1944 (ie, subject to doctrine of unjust enrichment) 7 Mahavir Textiles was engaged in manufacturing certain non-branded goods of textile sector While one notification granted FULL EXEMPTION to the said goods WITHOUT ANY CONDITION, another notification prescribed a concessional rate of duty of 4% on these items, with the benefit of cenvat credit At the time of selling the said goods to Dhara Industries, Mahavir Textiles opted to pay the excise duty at the concessional rate of 4% on such items under second notification with a view to claim the CENVAT credit of the duty paid on the inputs used in producing these goods Further, Dhara Industries availed the CENVAT credit of 4% excise duty paid by it on the said goods to Mahavir Textiles In the light of the aforementioned facts, answer following questions:- (a) Was Mahavir Textiles justified in paying 4% in respect of unconditionally fully exempted goods and can it avail the cenvat credit of the excise duty paid on inputs on the plea that it has paid excise duty on the final goods? (b) Can Dhara Industries avail the cenvat credit of the excise duty paid on the goods purchased from Mahavir Textiles? [ICAI RTP Nov, 2011] (a) No, Full unconditional exemption is mandatory by nature [Sec 5-A(1A) of CEA, 1944] Mahavir Textiles is, thus, not left with any option to pay duty Thus, these goods being exempted goods [Rule 2(d) of CCR, 2004], credit cannot be availed The credit if availed despite of full unconditional exemption, shall be treated as improperly availed and hence, recoverable within meaning of Rule 14 of CCR, 2004 (b) YES Though duty has been wrongly paid by the seller-manufacturer, but still buyer-manufacturer shall be entitled to book the credit NAHAR GRANITIES LTD GUJ HC Cenvat credit - Availment of, on inputs - Challenge to, on ground that manufacturer was not required to pay duty as goods were exempted from payment thereof HELD: Under Rules 3 and 4 of Cenvat Credit Rules, 2004, a manufacturer would be entitled to avail Cenvat credit in respect of inputs used for manufacture of a final product to take credit of the excise duty Assessee purchased inputs and utilised the same for manufacture of a final product Such inputs were duty paid, thus, Rules 3 and 4 ibid would enable him to avail the Cenvat credit It is a different thing that the supplier of inputs to the respondent paid excise duty under mistaken belief, and such amount deposited by the original manufacturer would not partake the character of excise duty When the Department did not dispute the classification by manufacturer and accepted the duty, Cenvat credit cannot be declined to the purchaser who otherwise fulfilled all conditions for availing Cenvat credit

4 EXEMPTION NOTIFICATION: CASE-STUDIES 8 The respondent assessee was carrying on construction of metro railway He manufactured pre-fabricated components of metro rail at one site to be used at different inter-connected metro construction sites The assessee claimed exemption under Notification No 1/2011 which exempts the goods covered under specified chapter headings for a specified period, manufactured at THE SITE OF CONSTRUCTION for use in construction work at such site Department contended that the assessee was not entitled to exemption as he did not fulfil the condition of manufacture at the site of the construction Examine the validity of the departmental contention citing a decided case, if any [Nov Marks] No, the contention of the Department is not valid in law The assessee is entitled to exemption under Notification No 1/2011 as all the metro construction sites were inter-connected This view has been endorsed by the High Court in the case of RAJENDRA NARAYAN DELHI HC In that case, the assessee constructed pre-fabricated components at the construction site allotted to it by the metro railway from where the components had been moved to different inter-connected metro construction sites The High Court observed that construction site was not located at one place but spread all over Thus, assessee entitled to exemption E/N 1/2011: Another related case-study CP MEIER DEL HC [ICAI Select Cases] Facts Assessee= Manufacturing and supply of pre-fabricated structural component to DMRC (Delhi metro Rail Corporation) E/N 1/2011 provides exemption to goods manufactured at the site of construction for use in construction work at such site Assessee manufactured goods not at site but at nearby site office provided by DMRC to avoid traffic jam at site The Department denied exemption to the petitioners as the manufacturing activity was undertaken by them at a separate off road site which was away from the main site, which according to the petitioners was done to avoid the traffic jams at site of construction Issue Whether denial of exemption to assessee is proper? Held Denial of exemption is wrong, assessee is entitled to exemption Exemption cannot be denied on grounds that the off road site which is used for manufacture is not the site of construction The said goods so manufactured at off road site was ultimately used for construction work at site and the condition of exemption notification of use at construction site was satisfied 9 A LTD is manufacturer of refined vegetable Oil and vanaspati, which are exempt from duty During course of manufacture of refined vegetable oil and vanaspati, fatty acid, waxes and gums are also getting produced A ltd has not paid any excise duty on fatty acid, waxes and gum upon the understanding that these are exempted under E/N 89/95 Department has objected to availment of exemption on ground that benefit of exemption cannot be extended to fatty acid, wax or gum as E/N 89/95 exempts waste arising out of manufacture of non-dutiable final product and fatty acid, waxes and gum are not in nature of waste All these products are in nature of by-products and hence, not covered by E/n 67/95 Discuss whether stand of Department is right YES, the contention of the Department is right The assessee is not entitled to exemption under Notification No 89/95 as that benefit is extendable only to waste and not to byproducts On identical facts, the same view as endorsed by Hon ble SC in case of AP SOLVEX LTD In that case, it was held that Fatty acid (also known as soap stock ), waxes and gums, etc were products and not 'waste, as 'waste' is of no value or negligible value, but said products being valuable were by-products Being by products and not waste, they were not exempt under Notification No 89/95-CX 10 A particular Central Excise Notification grants full exemption to all products of PRINTING INDUSTRY including newspapers and printed periodicals A manufacturer, who is manufacturing cardboard cartons and subsequently doing varied printing on them, claims the benefit of the said exemption notification on the ground that every material on which printing work is done becomes a product of the printing industry Is the claim of the manufacturer justified? Give reasons for your view [CWA Final-(7 marks)] The issue for consideration is whether the printed cartons be treated as product of printing industry so as to be eligible for the benefit of exemption notification The cardboard cartons manufactured by the assessee are basically product of packaging industry as their essential nature and use is in sense of a packaging product That being so, the issue posed before us hinges (rest) on the point whether getting them printed will make them product of printing industry In our view, printing will not convert a product of packaging industry into a product of printing industry This would be so irrespective of cost of printing That means, howsoever fancy or expensive may be the printing on the product, unless the product itself has come into existence as a result of printing process, it can t be said to be a product of printing industry An ordinary carton without any printing on it is a complete product A carton remains a carton and has only one use, namely packing of a product to be sold in the market The mere fact that something is printed on it doesn t change its essential

5 DG Education (P) Ltd [CX : Exemption from Excise Duty] nature or use Thus, a carton after printing remains a product of packing industry and therefore, ineligible for the benefit of said exemption notification Our view is also fortified by the decision of SC in case of ROLLATAINERS LTD-SC In light of the above discussion, manufacturer s claim for exemption from duty payment is not justified Tutorial Note: What can, then, be said to be product of printing industry? All products on which some printing is done are not the products of printing industry - If printing brings into existence a product, the resultant product would be a product of printing industry [in simple words, only those product in relation to which printing is the main manufacturing process (& not merely an incidental or ancillary process) can be said to be product of printing industry ] Thus, Cloth printed labels, aluminum foil printed labels, film printed labels and paper printed labels are eligible for exemption as product of printing industry [JOHNSON & JOHNSON LTD SC] [HBD PACKAGING (P) LTD TRI] HOLOSTICK INDIA LTD SC Security Holograms (adhesive sticker) are products of printing industry Final decision shall be taken based on primary use of the product Take example of an adhesive tape with monogram printed upon it The primary purpose of such tape is by virtue of its adhesiveness to bind and package containers in which goods are to be stored and transported Obviously, in such an example, the printed monogram of such adhesive tape would be incidental to its primary use of the said goods the adhesive tape By way of contrast, if we consider printed security holograms with adhesive features, then factor of adhesiveness is incidental to the primary use of security and thus, these shall be treated as product of printing industry 11 Decide the following problem with the help of case laws, if any: A notification issued by Govt of India exempted Iron or Steel products from payment of duty subject to the condition that the product is made from, fresh, unused, re-rollable scrap on which "appropriate amount of duty of excise has already been paid" M/s DLF manufactures Iron and Steel products from fresh, unused, re-rollable scrap which was charged to nil rate of duty They claim the exemption on Iron and Steel products claiming that nil rate duty is also the payment of appropriate duty The Department contends that the nil rate of payment is not payment of Central Excise duty The issue for consideration in the above question is whether NIL duty paid inputs are also duty paid inputs so as to be held eligible for the benefit of full duty exemption to the final product On identical facts, SC in case of DHIREN CHEMICALS INDUSTRIES 2002 SC [Constitutional Bench] held that Where the raw material is not liable to excise duty or such duty is Nil, no excise duty is, as a matter of fact, paid upon it To goods made out of such material the notification will not apply The notification is intended to give relief against the cascading effect of excise duty on the raw material and again on the goods made there from There is no cascading effect when no excise duty is payable upon the raw material and the hardship that the notification seeks to alleviate does not arise" Thus, in view of the decision of the Constitutional Bench of the SC, nil duty is not a payment of the duty so as to held M/s DLF be eligible for benefit of the Exemption Notification Accordingly, the contention of the Department is correct Interpretation Of EXEMPTION NOTIFICATION Strict interpretation vs Liberal interpretation An exemption is an exception to levy of duty, hence, exemption notifications are to be construed strictly For Example, If exemption is granted to JOINT VENTURE, then it cannot be availed of by Joint Venturer (one of the party to JV), as both are separate persons HARI CHAND GOPAL CHAND - SC If an exemption is granted only if a declaration / return is filed, then no exemption will not be available if such declaration, etc is not filed M/s HONDA SIEL POWER PRODUCTS LTD SC One of the conditions of E/N was that the duty had to be paid in cash or through account current However, the assessee cleared the goods through utilization of cenvat Credit which is not the prescribed mode mentioned as per the condition Held: Benefit of exemption inadmissible as condition of E/N has not been fulfilled If there is any doubt as to eligibility of assesse for exemption, then same is to be given in favour of the Department In any case, burden of proof as eligibility of exemption shall be upon the assesse

6 Recent cases GE EE LTD SC Assessee imported ultrasound equipment having feature A-Scan alongwith features B-Scan and M-Scan An E/N granted exemption to equipment having features of A-Scan only Held: E/N was required to be interpretated strictly and exemption to be granted only when subject matter falling within the language of notification In this case, exemption is not admissible as imported equipment contained features other than those specified in the notification Applicability of GRI (General Rules of Interpretation of CETA) IVRCL INFRASTRUCTURE & PROJECTS LTD SC [ICAI Select Cases] Facts Assessee= Builder He was awarded a contract for construction of road Notification, dated , exempted Hot mix plant viz 'goods required for construction of roads' from customs duty, if imported by a 'person' awarded a contract by NHA The assessee bought 'Hot mix plant' under said exemption by placing orders as follows: (a) Foreign company 'L' was to supply 'critical items' required for setting up of said plant, (b) Indian company 'M' was to supply various containers, frames, ducting, tanks and a belt conveyer apart from agreeing to set up plant after it is imported Issue Held The department denied exemption on grounds that what was imported was not a hot mix plant but only certain parts of such plant and, therefore, the exemption notification would not apply The assessee argued that Rule 2(a) of the GRI (General Rules For The Interpretation of the schedule to the Customs Tariff Act) would make it clear that so long as essentially the plant in question had been imported, merely because all items that go into the making of such plant were not imported would not matter Further, it is clear that such imports can also be made in unassembled form The department argued that rule 2(a) was inapplicable and in fact, there were various admissions made by the assessee as well as by persons who deposed on their behalf which would show that in any case even the essential portions of the plant had not been imported Whether Rule 2 of GRI can be applied for interpretation of E/N and thus, assessee entitled to exemption? Assessee is not entitled to exemption In the instant case, Interpretative rule 2(a) will have no application to an exemption notification which is issued u/sec 25 of the Customs Act (equivalent to Sec 5-A of CEA, 1944) Therefore, the fact that an unassembled plant which is incomplete but which has the essential character of a complete plant is not the test to be applied in the present case It is clear that a hot mix plant of the type mentioned alone is exempt from payment of customs duty Obviously, what is meant is that such plant in its entirety must be imported albeit in an unassembled form In this case, a complete plant in an unassembled form has not in fact been imported AMENDMENT TO CETA: INCREASING DUTY SEC 3 OF CETA, Discuss the power of Central Government to amend First & Second Schedules of CETA, 1985 Or Explain the emergency power of the Central Government under Central Excise Tariff Act, 1985 to increase the duty (May Marks) The rates at which excise duties are levied are given in the First and Second Schedule to Central Excise Tariff Act, 1985 The increment in rates of duty, therefore, requires amendment in the Central Excise Tariff Act, 1985 which can be made only when Parliament in session In case there is emergency as to increase in rate of duty, CG has been vested with emergency powers via Section 3 of Central Excise Tariff Act, 1985 to give effect to increase by issuing a notification in Official Gazette to that effect By such notification, the existing rate of duties can be substituted by new increased rates as stated below: (a) In a case where the existing Tariff rate of is NIL A rate of duty not exceeding 50% ad-valorem (expressed in any form or method) (b) In any other case, A rate of duty upto twice of the existing tariff rate of duty However, such notification shall be placed before each House of Parliament for approval If Parliament makes any modification or directs that the notification shall cease to have effect, the notification shall thereafter shall have effect in the modified form or be of no effect from date of approval However, validity of things done prior to the date the modification or cessation is directed by the Parliament shall remains unaffected

7 CUSTOMS EMERGENCY INCREASE Sec 8-A of CTA, 1975: Emergency Increase of duty [CA Final, Nov 2015] Where in respect of any article included in the First Schedule of CTA, 1975, the CG is satisfied that the import duty leviable thereon u/sec 12 of the Customs Act, 1962 (ie, Basic Customs Duty) should be increased and that circumstances exist which render it necessary to take immediate action, it may, by notification in the Official Gazette, direct an amendment of that Schedule to be made so as to provide for an INCREASE in the import duty leviable on such article to such extent as it thinks necessary CENTURY FLOUR MILLS LTD MADRAS HC Goods subjected to FREE DUTY emergency increase is possible in respect of such goods Since entry 'free' occurred in column 'rate of duty'; therefore, 'free' is also rate of duty (equivalent to 'Nil' or 'Zero' rate) and if Central Government is satisfied such duty should be increased, nothing precludes Central Government from issuing notification u/sec 8A Author s Note: Under Excise also, Nil Duty is also rate of duty [& Hence, Nil rated goods are also excisable goods ] Emergency increase is possible in respected of Nil Rated goods also [Sec 3 of CETA, 1985 clearly provides that new duty upto 50% can be notified] What the HC has essential held that position in respect of free goods is not different from the position of Nil rated goods [Under CTA, 1975, we find both types of entries Nil as well as Free ]