Finished Goods Exempt Provided the Inputs are Duty paid and No CENVAT Credit availed- CBEC to issue clarification to avoid unwanted Litigation

[CS SANJAY MALHOTRA]

Textile Goods (Chapter 50 to 63) – Finished Goods Exempt Provided the Inputs are Duty paid and No CENVAT Credit availed- CBEC to issue clarification to avoid unwanted Litigation

Ref: Notification No. 34/2015-CE dated 17.07.2015 (Amendment to Notification No. 30/2004-CE dated 09.07.2004)

• CBEC has recently issued Central Excise Notification No. 34/2015-CE dated 17.07.2015 thus amending the Notification No. 30/2004-CE dated 09.07.2004 by substituting the Provisions as below. There exists divergent views as to whether the amendment has resulted into levy of Excise Duty on textiles goods falling under Chapter 50-63 if the newly inserted provisions is not complied with:-

Extracts from Notification No. 34/2015-CE dated 17.07.2015:-

“Provided that the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004.”

Extracts from Notification No. 30/2004-CE dated 09.07.2004:-

“Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs has been taken under the provisions of the CENVAT Credit Rules”

DIVERGENT VIEWS- CBEC CLARIFICATION REQUIRED FOR IMPACT OF AMENDMENT IN NOTIFICATION No 34/2015-CE dated 17.07.15

• Textile Goods attracts EXEMPTION from Central Excise Duty on the basis of Notification No. 30/2004-CE dated 09.07.2004 subject to the condition that “NO CENVAT credit has been availed on Inputs”.

• Would Textile Goods be eligible for EXEMPTION from 17.07.2015 “provided the “Appropriate Duty of Excise leviable” has been paid on Input (Raw Material) and No CENVAT Credit has been availed under provisions of CENVAT Credit Rules 2004.

Inputs which are “Exempted from CENTRAL EXCISE duty” or attract “NIL Rate of Duty” as per Central Excise Tariff Act 1985 will not be eligible for DUTY EXEMPTION, as “appropriate duty of Excise” does not include the goods exempted from duty or chargeable to “Nil rate of Duty”. (Refer Apex Court decision in the case of CCE Vadodra Vs Dhiren Chemical Industries) & CBEC Circular No. 667 dated 26.09.2002.

Refer Citations : COLLECTOR OF C. EX., VADODARA Versus DHIREN CHEMICAL INDUSTRIES [2001 (12) TMI 3 - SUPREME COURT OF INDIA]

Circular No. 667/58/2002-CX dated 26^th September, 2002

• Circular No. 125/36/95-CX, dated 15^th May, 1995 clarified that the word “Appropriate Duty of Excise has been paid ” includes “NIL Duty goods” also but the Supreme Court Judgment in the case of CCE Vadodra Vs Dhiren Chemical Industries “held that the word “appropriate” in the context of such exemption notifications means the correct or specified rate of excise duty, and that where an exemption is extended subject to the condition that the “appropriate duty has been paid” on the raw material, then such exemption shall not be available when the raw material is not liable to excise duty or such duty is nil.

[Would the above bar is applicable for Notification No. 34/2015-CE dt. 17/07/15]

• What would be the treatment of Raw Material purchased directly from market???? Would that be considered as Deemed to be duty paid irrespective of whether the Excise Duty has ‘”NIL rate in Tariff” or enjoys Exemption by virtue of any Notification?????

• In the earlier Notifications No. 14/2002-CE dated 01.03.2002 the phrase “appropriate duty of Excise has already been paid” was mentioned and in the recent Notification No. 34/2015-CE- dated 17.07.15, the phrase has been amended to “appropriate duty of excise leviable has been paid”??? Would that mean that if the Raw Material is not leviable to Excise Duty, even then the benefit of Exemption Notification No. 30/2004-CE dated 09.07.04 holds good for Finished Goods?????

• What would be the treatment for Composite Mills who undertakes activity of Spinning of Yarn, Grey Fabrics and then processing of textile fabrics and sales afterwards? Do they have to pay Duty as per Notification No. 34/2015-CE dated 17.07.15 as their intermediate goods i.e. Yarns, Grey fabrics are subject to Nil Duty as per Notification No. 30/2004-CE dated 09.07.2004.

Hope CBEC would come out with clarifications timely and avoid unwanted litigations and divergent business practices….

---

 

In continuation to my article on Notification No. 34/2015-CE dated 17.07.2015, the matter was taken up with various officials of the department and it's interesting to note that even the departmental officers does not have clarity what to communicate exactly to assessee's in respect of duty liability, whether the goods are still exempted if no duty is leviable on inputs or otherwise.

We understand that CBEC does not want to take Finished Goods out of duty exemption in cases where the Inputs are chargeable to NIL rate of duty or are exempt by virtue of some Notification, but the wrongly worded phrase "Appropriate Duty of Excise leviable has been paid" has put them in trouble as the same as clarified by CBEC in Circular No. 667 dated 26.09.2002.

Commissioners at various jurisdictions are of the view that Excise Duty has been imposed on Textile Goods if the raw material is exempted from Duty, but still some are of the view that Industry players misinterpretation is wrong. To bring the facts of Department's interpretation, please go through below Trade Notice issued by Commissioner at Surat thus mentioning Trade to take registrations and declare stock with Central Excise offices.

CBEC should without delay come out with clarification so thatr Industry should go ahead and make clearances which are struck up for the past 2 days.

Trade Notice No. 03/2015

Discussions to this article

[hetal GAJJAR]

Dear Sir,

Another controversial issue in this notification is last part of the amendment. As it required condition on the part of manufacturer to check whether the manufacturer from whom he is buying his input had availed CENVAT on not. It will be going to high litigation issue. Expect more clarification on this.

[CS SANJAY MALHOTRA]

Dear Hetal,

Addition to article will be published shortly.

Agreed with you that Notifications issued are controversial and moreover due to lack of clarity from CBEC, industry has hold the clearances for the past 2 days. Hopefully CBEC would come over the amendment without further delay as through this TMI platform, they have made aware of the complications of the recently Notification No. 34, 35, 36 issued on 17.07.2015.

[CS SANJAY MALHOTRA]

Dear Friends,

Very interesting to note that Commissioner Central Excise Surat has issued Trade Notice No. 03 dated 20.07.2015 intimating Trade to get themselves registered and declare stock in lie of Notification No. 34/2015-CE dated 17.07.15 which is worded in such a manner that NlL Duty Raw material goods will not enjoy Duty Exemption.

Mr. Akshay Joshi (Under Secretary Finance) has clarified in meeting with Association at Rajasthan that the Notification does not put Textile mills goods chargeable to duty and the Notification has been misinterpretated.

http://epaper.patrika.com/c/5943309

WHOSE COMMENTS (WRITTEN TRADE NOTICE OF COMMISSIONER - SURAT OR VERBAL CLARIFICATION FROM REPRESENTATIVE OF MOF) ONE SHOULD FOLLOW FROM THE SAME NOTIFICATION NO 34/2015-CE DATED 17.07.15

Adding to more confusion. Lets departmental officers clarify at their end first and then share with the industry...

[CS SANJAY MALHOTRA]

Dear Friends,

Issues arisen from Notification No. 34, 35 & 36/2015-CE dated 17.07.15 are become interesting day by day as CBEC fails to come out with clarification or withdrawal of the said notifications.

Reported in TMI yesterday as to different versions as highlighted in Trade Notice No 03/20.07.15 issued by Commissioner Excise - Surat and Communication from CBEC member to Industry/ industry associations, Commissioner Excise - Surat has withdrawn his Trade Notice No. 03 dated 20.07.15 by issuing Trade Notice No. 05/21.07.15 (same will be shared by TMI Team)

Withdrawal of Trade Notice by Commissioner- Surat clearly reveals the CBEC intention that Notification No 34/2015 does not have any intention to levy duty if inputs attracts NIL duty or are exempted from duty. CBEC is not able to come out with the amendment and Industry across nation is suffering due to non movement of stocks from factories due to lack of clarity on Notification No 34/2015.

[CS SANJAY MALHOTRA]

Finally CBEC has issued Notification no. 37/2015-CE datd 21.07.15 thus clarifying that "" Appropriate Additional Duty includes goods chargeable to Nil duty or concessional duty""

http://www.cbec.gov.in/excise/cx-act/notfns-2015/cx-tarr2015/ce37-2015.htm

[Saurabh Patel]

Sir,

The new clarification suffices that Textile Units producing cloth from yarn are not subject to excise. However, do they have to take registrations and declare stock.

-Saurabh Patel

[CS SANJAY MALHOTRA]

Dear Mr. Saurabh,

No need to take any registration or declare stock as the position has been restored as it existed before 17.07.15.

regards

[kunal umarani]

Dear Sir,

Can textile article manufacturer take the excise registration though his end products are free from excise duty.