SSI Units - Basics - Central Excise Practice Manual (OLD) - Central Excise

SMALL SCALE INDUSTRIES (SSI) - Basics Vide notification no.08/2003 dated 01/03/2003 the govt. has given various concessions to small scale industries (SSI). All industries (even large scale unit) irrespective of their investment or no. of employees are eligible for concession only if their turnover in previous year was less than Rs.4 crores. Example: Units whose turnover was over Rs.4 crores in 2006-07 are not eligible to any SSI concession in 2007-08, they have to pay full normal duty from 1 st April, 2007 and if turnover is less than Rs.4 crores in 2006-07 such units are eligible for SSI exemption upto Rs.150 lakhs i n 2007-08. However SSI units have the following options of exemptions: - (a) A manufacturer can avail full exemption upto Rs.150 lakhs and pay normal duty thereafter and can avail Cenvat credit on inputs after crossing exemption limit of turnover of Rs.150 lakhs in the financial year, or (b) A manufacturer has the option not to avail the exemption and instead pay the normal rate of duty and avail Cenvat credit. Option (b) is available any time during the year, but this option once availed cannot be withdrawn during the financial year. While availing this option the manufacturer shall inform in writing to the Assistant /Deputy Commissioner of Central Excise with a copy to the Superintendent of Central Excise giving the following particulars:- Name and address of the manufacturer; Location/locations of factory/factories; Description of inputs used in manufacturer of specified goods; Description of specified goods produced; Date from which option under this notification has been exercised; Aggregate value of clearances of specified goods (excluding the clearances not covered under SSI exemption notification) till the date of exercising the option. Besides excise duty concessions, other concessions to SSI units are as follows:- I. Procedural Concessions: - Units availing SSI exemptions have to submit a quarterly ER-3 return, by 10 th of following month instead of monthly return and have to pay duty by 5 th of following month (except for the month of march in which duty is payable by end of the month). Exceptions:- 1. This relaxation is not available to the manufacturer producing goods with other's brand name. But if manufacturer partly manufactures goods with other's brand name and also avails SSI exemption in respect of remaining goods, he can avail this facility. 2. If SSI unit pays normal duty without availing SSI concession, it will have to file monthly return and pay duty on monthly basis by 5 th of the march even if its annual turnover is less than Rs. 4 lakhs. II. Exemption of Registration: - Units having turnover (export turnover to be excluded) below Rs.150 lakhs, which are exempt from duty are also exempt from registering themselves with excise authorities. However they have to maintain their own records (and not statutory records) of manufacture and clearance, to prove their turnover is less than Rs. 150 lakhs per year. III. Exemption from Declaration: - Small Units whose turnover is below Rs. 90 lakhs (specified limit) per annum do not have to file any declaration. While others have to file declaration in prescribed form with Assistant Commissioner, central excise and obtain a dated acknowledgement once in lifetime of assessee. They will not be given any ECC code number as it need not be mentioned in the invoice or challan. IV. Exemption in case goods manufactured without aid of power (Notification no.167/86): - If no process in or in relation to manufacture of goods is ordinarily carried on with aid of power, than the manufacture of such goods can avail excise benefits on such goods. The only requirement is that use of power should not be integrally connected with the manufacture of final product as even a minor operation such as of drilling done with aid of power, would dis-entitle the manufacturer of excise benefits, if the process is integral with manufacture of final product. Burden of proof is in assessee that goods were not manufactured with aid of power. If inputs used in the manufacture of goods is purchased from outside the factory concession will be available on final product even if power is used in manufacture of such inputs. But if any intermediate process is got done from outside the factory (i.e. job work etc.) with aid of power, the exemption may not be available. V. Goods manufactured by cooperatives in rural area (Notification No . 88/88): - Goods manufactured by registered cooperatives or institutions recognized by Khadi and Village Commission or Board are exempt. However unit owned by an individual in the rural area approved by Khadi and Village Industries Commission is not exempt. VI. Certain items produced by village industry and marketed by or with assistant of Khadi and Village Industries Commission are exempt from duty. The products include - lac, gum, vegetable products, fireworks, resin acids, articles of vulcanized rubber, leather, articles of wood, ceramic products, furniture etc. (Notification No.198/87). Note: (A) Mere payment of full duty does not mean that he has OPTED not to avail SSI exemption. Thus assessee has to inform the department that he is not availing exemption and opt to pay full duty. Example: It cannot be said that assessee has opted out not to avail SSI exemption- 1. If due to clerical mistake or due to sheer ignorance that such option exists he pays the full duty, or 2. If he is not sure whether he has crossed the turnover limit of 4 crores in the previous year and pay full duty on few clearances, or 3. Subsequently he starts manufacturing goods with his own brand name he can avail exemption on the goods manufactured on its own name. (B) Manufacturer manufacturing various products is not permitted to avail Cenvat for some items and SSI exemption for other items. He has to avail Cenvat for all items or opt for exemption from Cenvat for all products. This is applicable even if the manufacturer owns more than one factories, he has to avail the same option in respect of all the factories. Example: There may be buyer who wanted to avail Cenvat credit on some items and on other items he does not want to avail Cenvat credit, which is not permitted. EXCEPTION - if the final product is exported, the manufacturer can avail Cenvat credit in respect of inputs used for final product which is exported. But he should maintain separate account right from raw material stage to final production. (C) SSI exemption is not available if the assessee manufactures goods in Kutch District of Gujarat and avails exemption (under notification NO. 39/2001-CE dated 31/7/2001) subject to certain restrictions. CLUBBING OF CLEARANCES: - For the purpose of SSI exemption, clearances effected by one or more manufacturers from the same factory or from one or more factories of the same manufacturer would be clubbed. This is intended to prevent fragmentation of units to avail undue duty benefits. 1. Clearances effected by one or more manufacturers from the same factory: Clearances effected by different manufacturers from the same factory will be clubbed together for determining the value of clearances. Thus it can be said that the benefit of the concession is related to the factory premises, irrespective of whoever may be the manufacturer with reference to the factory. 2. Clearances effected from one or more factories of the same manufacturer: Clearances effected from one or more factories of the same manufacturer will be clubbed for determining the value of clearances. It is also essential that the factories must be of the same manufacturers and if they are not, clearances cannot be clubbed even if they are relatives, provided both of them have separate capital and plant machinery and both are managed separately by the respective owners. 3. Change of ownership during the year if ownership of factory changes during the year, clearances of previous owner as well as new owner during the year will be clubbed. 4. if 2 units/companies amalgamate or merge If 2 units or Companies are amalgmated or merged, the clearance of them will be clubbed. 5. Other cases are: Where there are some common partners/directors in different partnership firms/corporate bodies, each will be regarded as a separate unit, provided they are managed separately and funded separately.[Prima Controls (P) Ltd. v. CCE 1994 (72) ELT 62 (T) A person who is a director in a company and also having his own sole proprietorship firm clubbing of clearances of the company and firm is not permissible.[Kanam Foam Industries v. CCE 1993 (68) ELT 368]