EY Tax Alert. Executive summary

Transcription

1 23 July EY Tax Alert Government issues Notifications to restrict benefit in respect of CVD exemption for certain goods under exemption notifications, to domestic manufacturers Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. This Tax Alert summarizes Central Excise Notification Nos. 34/, 35/ and 36/ dated 17 July amending certain Notifications that provide exemption / concessional rate of duty under Central Excise. The said Notifications have been further amended vide Notification Nos. 37/, 38/ and 39/ dated 21 July. The Supreme Court in the case of M/s SRF Ltd. vs Commissioner of Customs (Import & General) 1 held that the benefit of exemption granted to excisable goods covered under exemption notification with a condition not to avail CENVAT credit can also be extended to importers. Consequent to this decision, the Government has amended certain exemption notifications with a view to restrict the benefit of exemption / concessional rate of duty to domestic manufacturers. Vide subsequent notifications it has been clarified that manufacturers who procure exempt inputs will still be eligible to avail benefit under the exemption notifications for their manufactured goods. 1 -TIOL-74-SC-CUS

2 Background A recent Supreme Court decision in the case of SRF Ltd. (supra) dealt with the issue of eligibility of the assessee to claim exemption from payment of additional duty of customs [Countervailing duty (CVD)] in terms of Notification no. 6/2002-CE dated 1 March 2002, which provides exemption from payment of Excise duty on certain excisable goods, subject to the fulfilment of specified conditions. The Supreme Court held that the assessee was eligible to claim exemption from payment of CVD. It observed that the actual manufacture or production of a like article in India is not necessary for attracting CVD. For the quantification of CVD in such a case, the article has to be deemed to be manufactured or produced in India, and accordingly, the amount of Excise duty should be ascertained. The Apex Court decision benefitted importers of various products, which were eligible for exemption / concessional rate of duty. Importers also sought to claim refund of excess CVD paid for past imports based on this judgment. Consequent to this, the Government has now amended certain notification nos. 30/2004-CE dated 9 July 2004, 1/2011-CE dated 1 March 2011 and 12/2012-CE dated 17 March 2012 in order to restrict the benefit of exemption / concession rate of duty to domestic manufacturers. Key features of the amendment Notification no. 34/-CE dated 17 July This notification amends Notification No. 30/2004 CE dated 9 July 2004 which exempts specified excisable goods from the levy of Excise duty subject to the condition that no credit of duty paid on inputs has been taken in respect of such goods under the provisions of CENVAT Credit Rules, 2004 (CCR). The goods specified in this notification relate to Textile and Textile articles. This condition has now been substituted to provide that, in order to avail this exemption, the excisable goods should be manufactured from inputs on which appropriate duty of Excise leviable under the First Schedule to the Central Excise Tariff Act, 1985 or CVD under Section 3 of the Customs Tariff Act, 1975 has been paid. Further, no credit of such Excise duty or CVD on inputs has been taken by the manufacturer of the goods (and not the buyer of such goods). Through a subsequent Notification 2 it has been further clarified that appropriate duty or appropriate additional duty includes Nil duty or concessional duty, whether or not read with any relevant exemption notification. Notification no. 35/-CE dated 17 July This notification amends Notification no. 1/2011-CE dated 1 March 2011 which grants the benefit of concessional rate of Excise duty for specified excisable goods. This exemption was granted on the condition that no credit of duty on inputs or tax on input services has been taken in respect of such goods. The said condition has been substituted to provide that, in order to avail the exemption, excisable goods should be manufactured from inputs or by utilising input services on which appropriate Excise duty or CVD or Service tax under Section 66B of the Finance Act, 1994 has been paid. Further, no credit of such Excise duty or CVD or Service tax is taken by the manufacturer of the goods (and not buyer of such goods), under the provisions of CCR. Through a subsequent Notification 3 it has been further clarified that appropriate duty or appropriate additional duty or appropriate Service tax includes Nil duty/service tax or concessional duty/service tax, whether 2 Notification no. 37/-CE dated 21 July 3 Notification no. 38/-CE dated 21 July

3 or not read with any relevant exemption notification. Notification no. 36/-CE dated 17 July This notification amends certain conditions prescribed in Notification no. 12/2012-CE dated 17 March 2012 which are required to be fulfilled in order to be eligible for the exemption / concessional rate under the Notification. Amendment in Condition no. 16: This condition is applicable to the goods falling under certain specific entries of Chapter Heading 72, 76, 84 and 85 including Mobile Handsets and Cellular phones. Previously, it was prescribed under this respect of inputs or capital goods used in the manufacture of the goods. buyer of such goods) under Rule 3 or Rule 13 of CCR. Amendment in Condition no. 25 This condition is applicable to the goods falling under certain specific entries of Chapter Heading 71, 31 and 27 Previously, it was prescribed under this respect of inputs or input services used in the manufacture of the goods. The substituted condition provides that if inputs or by utilising input services on which appropriate duty of Excise or CVD or Service tax has been paid, no CENVAT credit of such Excise duty / CVD on such inputs or Service tax on input services should be taken by the manufacturer of such goods (and not the buyer of such goods) under Rule 3 or Rule 13 of CCR. This condition has been substituted to provide that if excisable goods are manufactured from inputs or capital goods on which appropriate duty of Excise or CVD has been paid, no CENVAT credit of such Excise duty / CVD on such inputs or capital goods has been taken by the manufacturer of such goods (and not the buyer of such goods) under Rule 3 or Rule 13 of CCR. Amendment in Condition no. 52A: This condition is applicable to goods covered under Tariff Heading The erstwhile condition laid down a restriction for availment of CENVAT credit in respect of inputs, input services or capital goods as per Rule 3 or Rule 13 of CCR. Amendment in Condition no. 20: This condition is applicable to goods covered under Tariff Heading As regards availment of CENVAT credit, it was previously prescribed under this respect of inputs used in the manufacture of the goods. The substituted condition provides that if inputs on which appropriate duty of Excise or CVD has been paid, no CENVAT credit of such Excise duty/cvd on such inputs has been taken by the manufacturer of such goods (and not the After substitution, it provides that if inputs or capital goods or by utilising input services on which appropriate duty of Excise or CVD or Service tax has been paid, no CENVAT credit of such Excise duty or CVD or Service tax should be availed by the manufacturer of such goods (and not the buyer of such goods) under Rule 3 or Rule 13 of CCR. Clarification on appropriate duty Through a subsequent Notification 4 it has been clarified with respect to the above amendments that appropriate duty or appropriate additional duty or 4 Notification no. 39/-CE dated 21 July

4 appropriate Service tax includes Nil duty/service tax or concessional duty/service tax, whether or not read with any relevant exemption notification. Comments With these amendments, the Government seeks to overcome the impact of the SC decision in case of SRF Ltd, by restricting the benefit of exemption / concessional rate of Excise duty to the domestic manufacturers. This is in line with the Government s Make in India initiative, by giving a boost to domestic manufacturing visà-vis imports. Further clarification provided vide subsequent notifications regarding the scope of appropriate duty will bring respite to manufacturers who procure exempt inputs, as they will still be eligible to avail the benefit under the exemption notifications for their manufactured goods. Government s move to cover Nil/concessional rate of duty within the ambit of appropriate duty despite the decision of the Larger Bench of the Supreme Court 5 meets the intent of extending the duty benefit to domestic manufacturers. 5 Collector of Central Excise, Vadodara vs. Dhiren Chemicals Industries [2002 (139) ELT 3 (SC)]

5 Our offices Ahmedabad 2nd floor, Shivalik Ishaan Near. C.N Vidhyalaya Ambawadi, Ahmedabad Tel: Fax: Bengaluru 12th & 13th floor U B City Canberra Block No.24, Vittal Mallya Road Bengaluru Tel: Fax: Prestige Emerald, No. 4, 1st Floor, Madras Bank Road, Lavelle Road Junction, Bangalore Chandigarh 1st Floor SCO: Sectr 9-C, Madhya Marg Chandigarh Tel: Fax: Chennai Tidel Park, 6th & 7th Floor A Block (Module 601, ) No.4, Rajiv Gandhi Salai Taramani Chennai Tel: Fax: Hyderabad Oval Office 18, ilabs Centre, Hitech City, Madhapur, Hyderabad Tel: Fax: Kochi 9th Floor ABAD Nucleus NH-49, Maradu PO, Kochi Tel: Fax: Mumbai 14th Floor, The Ruby 29 Senapati Bapat Marg Dadar (west) Mumbai Tel Fax th Floor Block B-2, Nirlon Knowledge Park Off. Western Express Highway Goregaon (E) Mumbai Tel: Fax: NCR Golf View Corporate Tower B Near DLF Golf Course, Sector 42 Gurgaon Tel: Fax: th floor, HT House Kasturba Gandhi Marg New Delhi Tel: Fax: th & 5th Floor, Plot No 2B, Tower 2, Sector 126, Noida Gautam Budh Nagar, U.P. India Tel: Fax: Pune C 401, 4th floor Panchshil Tech Park Yerwada (Near Don Bosco School) Pune Tel: Fax: Ernst & Young LLP EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata Ernst & Young LLP. Published in India. All Rights Reserved. ED None This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. Kolkata 22, Camac Street 3rd Floor, Block C Kolkata Tel: Fax: EY refers to global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited Join India Tax Insights from EY on