Area Based Exemption- Changes in refund schemes - Provisions Explained - Central Excise - Trade Notice No.05/2008

Trade Notice No.05/2008 Dated Dibrugarh the 31st March 2008 Subject: Area Based Exemption- Changes in refund schemes. The Trade, Industry and all others concerned are informed that area based exemptions from Central Excise duty operating as refund scheme are currently in operation for North Eastern States under Notification No. 32/99-CE and 33/99-CE both dated 8.7.99 and under Notification No.20/2007-CE dated 25.04.2007. 2. In all these cases, the exemption operates through a refund mechanism. Thus, the manufacturer availing of the exemption is required to fully utilize the CENVAT Credit available with him at the end of the month and pay the balance duty payable either in cash or through PLA. The duty paid in cash or through PLA is then refunded to the manufacturer. Analysis of data collected from field formations in respect of units availing of the exemption indicates that the scheme in its present form does not necessarily link the quantum of incentives to the value addition undertaken by the units. The underlying objective of these exemptions is to incentivize genuine value addition in these backward areas. In order to implement these exemption in a more effective manners some changes /amendments have been carried out in these exemptions. These have been incorporated in Notification No.17/2008-CE, 18/2008-CE and 20/2008-CE all dated 27.03.2008 3. The salient features of these amendments are as follows:- i) Goods covered by the scheme and manufactured by eligible units in the specified area are currently exempt from so much of the duty of excise as is equivalent to the duty paid in cash or through account current (PLA), instead, the extent of exemption shall henceforth be equivalent to the duty payable on value addition carried out by the units in these areas. ii) The rates of value addition for goods falling under different chapters of the Central Excise Tarriff have been prescribed in the Notification. The amount of refund that would be due to the unit at the end of the month would be computed by simply multiplying the total duty payable by it with the applicable rate of value addition. Thus, if the total duty payable by unit manufacturing cosmetics, classifiable under Chapter 33 works out to be Rs.100 and the applicable rate of value addition is 56% ( Sl.no. 3 of the table), the amount of refund due to him would be Rs.56 (100:56%). The Notification provides, however, that in case the actual duty paid by the unit in cash or through PLA during that month is less than the amount calculated in the aforesaid manner, the refund would be restricted to the amount actually paid. iii) There is no substantive change in the procedure for filling the refund claim except the supporting documents that the assessees is required to furnish. These are specified in the Notification. The current provision for self-credit of the refund amount by the assessees has also been retained. iv) It has also been provided that in case the actual value addition undertaken by a unit exceeds the prescribed rate by more that 25% (i.e. say, in case the value addition is 50% whereas the rate prescribed is less than or equal to 40%), the unit may apply for a special rate to be fixed by the jurisdictional Commissioner. The special rate would be fixed on the basis of the factors specified in the explanation (defining actual value addition and special rate) in the Notifications. The information pertaining to these is required to be taken from the financial records/ statement of the assessee for the preceding financial year. For the case of computation, it has been prescribed that assessee would furnished a certificate from the statutory auditor containing a computation of the actual value addition, alongwith his application for a special rate. v) Once fixed, the special rate would be applicable from the date on which the assessee made the claimed. Any refunds made in the intervening period would be adjusted accordingly. vi) These changes shall be effective from 1st April, 2008. Authority: Joint Secretary TRU's letter F.No. 354/34/2004-TRU (Pt.) dated 27.03.2008 Sd-/- (T.Haokip) Commissioner