Permission to dispose of Plant and Machinery Supplied to UN Projects

[Pradeep Jain]

Burdened with extraordinary expectations after a campaign that promised "good days are coming," Prime Minister Narendra Modi's center-right government presented the most hyped budget on Thursday aimed at increasing investment, improving infrastructure and reviving manufacturing, though it fell short of the drastic overhauls necessary to rein in spending. The much anticipated Budget 2014 delivered amid an environment of price rise and huge expectations from the government brought about several changes in the gamut of indirect taxes. One of which stands the insertion of a proviso in Notification 108/95 CE dated 28.08.1995.

BACKGROUND

NOTIFICATION 108/95 CE Dated 28.08.1995, provides for exemption from payment of duty of excise, for all goods when supplied to United Nations or an International organization for their official use or supplied to the projects financed by the said United Nations or an International organization and approved by the Government of India. Due to the boom in infrastructural sector, several infrastructural development works, such as road projects, etc. are being carried out by the Central Government / various State Governments, with financial assistance from various International organizations. The exemption is subject to a condition that if the goods are thus supplied to a project, a Certificate from an officer not below the rank of Deputy Secretary to the Government of India, in the Ministry of Finance should be furnished certifying that the said goods are required for the execution of the said project and that the said project has duly been approved by the Government of India.

Claiming the said exemption for consumable goods such as cement, steel, etc., which would be used in the project does not have any problem. But, when some capital items, such as cranes, crushers, machineries, etc. are required for execution of the said project, there is a possibility that the contractor may claim exemption for such goods and after using it in the said project for namesake, divert the same to his any other contracts, which are not entitled for the benefit of exemption. By this ingenious method, a contractor may procure all his capital equipments required for all his contracts, claming exemption under this notification on the basis of the Certificate as envisaged and immediately withdraw the capital equipments from the said project and divert the same to his other projects.

In order to avoid such dubious practices, an Explanation had been inserted in Notification 108/95, vide Notification 13/2008 CE Dated 01.03.2008, which disentitled the exemption in respect of the items which are temporarily used in the said projects. In case of items of capital nature, like cranes, crushers, machines, etc. the exemption could not be denied, if these items were used in the project, till the completion of the project and not withdrawn in between and the exemption could not be denied, if such capital items were transferred to any other projects, after completion of the specified projects. In other words, the vice of this explanation would get attracted only in case of premature withdrawals.

However this notification could not provide benefit of exemption on plant and machine supplied prior to 2008. Such plant and machine (obtained prior to 2008) could not be transferred or sold out from the project site. The contractors, in such case were left with 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!

GOOD NEWS: BUDGET 2014’s IN

With the budget hailed a good news for the contractors. Vide Notification No. 11/2014-Central Excise dated 11.07.2014 the Central Government seeks to amend Notification No. 108/95-Central Excise dated 28.08.1995. In the said notification, after the proviso, the following shall be inserted, namely:-

“2. Where the said goods are cleared prior to the 1st March, 2008, the manufacturer may -

1. transfer the said goods to a new project subject to the condition that the manufacturer produces before the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture, a certificate from the officer concerned of the Central Government, State Government or Union territory Administration, as the case may be, that the said goods are no longer required for the said project and a declaration from the United Nations, the World Bank, the Asian Development Bank or any other international organization listed in the Annexure to the said notification that the said goods are required for the new project and the said project has duly been approved by the Government of India; or
2. pay duty of excise which would have been payable but for the exemption contained herein on the depreciated value of the said goods subject to the condition that the importer produces before the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture, a certificate from the officer concerned of the Central Government, State Government or Union territory Administration, as the case may be, that the said goods are no longer required for the existing project. The depreciated value of the said goods shall be equal to the original value of the goods at the time of clearance reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of clearance of the said goods, namely:-

1. for each quarter in the first year at the rate of 4 per cent;
2. for each quarter in the second year at the rate of 3 per cent;
3. for each quarter in the third year at the rate of 2.5 per cent; and
4. for each quarter in the fourth year and subsequent years at the rate of 2%,

subject to the maximum of 70%.”.

With the upcoming of such proviso the supplier of Plant and machinery can now transfer the said goods to a new project subject to the following conditions:

1. the manufacturer needs to produce before the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, a certificate from the officer concerned of the Central Government, State Government or Union territory Administration, that the Plant and Machinery are no longer required for the said project, and;
2. a declaration from the United Nations, the World Bank, the Asian Development Bank or any other international organization listed in the Annexure to the said notification that the said goods are required for the new project and the said project has duly been approved by the Government of India.
3. For clearance of the such Plant and machinery the importer shall have to pay excise duty on the depreciated value of the same after charging depreciation on the original value of it as calculated in the manner and at the rates as prescribed in the amendment notification for transfer of the said goods to a new project subject to the condition that the manufacturer produces before the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture, a certificate from the officer concerned of the Central Government, State Government or Union territory Administration, as the case may be, that the said goods are no longer required for the said project and a declaration from the United Nations, the World Bank, the Asian Development Bank or any other international organization listed in the Annexure to the said notification that the said goods are required for the new project and the said project has duly been approved by the Government of India.

TO SUM UP…

For the machine supplied by the supplier before 2008, if the exemption of duty had to be availed the supplier could not transfer or sell out such machines in any circumstance. However, with the introduction of amendment through the budget of 2014, liberty has been provided to transfer or sell the said plant and machinery from the project site subject to the conditions discussed above