Application of S. 3A of the Central Excise Act, 1944 to Re-Rolling Mills - reg. - Central Excise - 326/42/97-CX

Circular No. 326/42/97-CX dated 25/7/97 F.No. B-31/7/97-TRU Government of India Ministry of Finance Department of Revenue Tax Research Unit, New Delhi Subject : Application of S. 3A of the Central Excise Act, 1944 to Re-Rolling Mills - reg. I am directed to say that it has been decided to invoke the provisions of section 3A of the Central Excise Act, in respect of hot re-rolled products made by re-rollers. Notification No. 23/97-CE (NT), dated 25.7.97 has been issued to notify such products under section 3A. 2. The rules for determination of the annual capacity of production of a factory producing re-rolled products are contained in notification No. 25/97-CE (NT), dated 25.7.97. 3. The capacity of production of a hot re-rolling mill is to be determined by applying the formula : Annual Capacity = 1.8885 x 10 -4 x d x n x i x e x w x Number of hours utilized. 4. It may be observed that three parameters, namely, d, n, i are to be determined on physical measurement basis for each factory. The other there parameters namely, e, w and number of utilised hours have been given a deemed value in the rules. Thus, for practical purposes the value (measurement) is required to be ascertained in respect of d, n and i, Once these are known, the application of the formula will give the annual capacity of production of a factory in metric tonnes. 5. The number of hours utilised depends upon whether the re-heating furnace is batch or pusher type. For this purpose the table in sub-rule (3) of rule 3 may be seen. The value of factor w depends upon the diameter of the finising mill as indicated in sub- rule (3). 6. The application of the formula is illustrated in the following example Assume that for a low speed re-rolling mill,- d = 150 mm; n = 750 RPM; i = 3/4; w (from the table) will be = 0.62; since the mill is low speed, e will be = 0.35; Assume that the factory has two re-heating furnaces of batch type. Thus the number of hours utilised shall be deemed to be 4800 hours. The formula is:- Annual capacity = 1.885 x 10 -4 x 150 x 750 x 3/4 x 0.35 x 0.62 x 4800 Substituting the values we get, A. = 1.8885 x 10 -4 x 150 x 750 x 3/4 x 0.35 x 0.62 x 4800 Annual capacity = 16566.3225 MT, or say 16566 MT 7. The hot re-rollong mills may be asked to declare the value of d, n and i and also declare whether it is low speed mill or high speed mill. Thereafter, necessary action may be taken to verify the correctness of this declaration. If necessary, the Commissioner of Central Excise may take the help of any technical person in this regard. 8. In case there is likely to be any delay in determining the capacity of production it may be determined on a provisional basis. However, though provision for determination of capacity on provisional basis has been made in the rules it may not be used as a matter routine. In fact, it is expected that the entire exercise of determining the capacity of production of re-rolling mills should be completed by the Commissioner of Central Excise in the month of August, 1997 itself. Accordingly, for the month of August, 1997, a special dispensation has been made for the re-rolling mills to pay the duty liability for that month by the end of August, 1997. 9. The manner of payment of excise duty under section 3A is indicated in notification No. 27/97-CE (NT), dated 24.7.97. The provisions of rule 96ZP may be referred to. A rate of duty of Rs. 400 per metric tonne has been prescribed as the rate applicable under section 3A, vide notification No. 43/97-CE. However, and very importantly, sub-rule (3), read with sub-rule (4), of rule 96ZP provides an option under which a manufacturer of re-rolled products can opt to discharge the duty liability under section 3A by payment of a lump sum amount every month. This amount shall be calculated as 1/ 12th of the amount obtained by multiplying the annual capacity with a factor of 300. 10. As mentioned earlier, for the month of August, 1997, a manufacturer is required to pay the duty by 31.8.97. For subsequent months the duty has to be paid in the beginning of the month and latest by 10th of the month. In case of default interest would become payable. The following illustration explains the operation of sub-rule (3):- 11. Assume that the annual capacity of a re-rolling mill has been determined as 14400 metric tonnes. The duty liability per annum comes to Rs. 14400 x 300 i.e. Rs. 43.2 lakhs. In case the manufacturer wishes to avail of the option under sub-rule (3) he will be required to pay an amount of Rs. 3.6 lakhs by 31.8.1997. Thereafter also, he will have to pay an amount of Rs. 3.6 lakhs by the 10th of each month subsequent of August, 97. 12. A manufacturer wishing to avail of sub-rule (3) is required to exercise the option in the proforma prescribed under sub-rule (4). 13. If a manufacturer does not wish to avail of sub-rule (3) of 96ZP, such manufacturer is required to pay excise duty at the rate of Rs. 400/- per metric tonne through account current at the time of clearance of goods from his factory. However, by virtue of the fact that section 3A has been invoked for re-rolled products, the total duty liability of the manufacture is based on the capacity of production. Accordingly, the manufacturer shall be legally bound to discharge the total duty liability on this basis. Sub-rule (1) of rule 96ZO may be referred to for details. It may be noted that the manufacturer can pay on account payment at any point of time, in addition to payment of duty at the rate of Rs. 400/- per metric tonne at the time of clearance, so as to ultimately discharge his total duty liability by the end of March, 1998 for the year 1997-98 or by the end of March of subsequent financial years. 14. There are certain other provisions contained in the rules, like how to claim rebate in case factory is closed for not less than seven days, etc. These are self contained. They may be explained to the trade in the trade notice to be issued. 15. With effect from 1.8.97, manufacturers of hot re-rolled products shall not be eligible to take modvat credit on any of the inputs or on capital goods. The products made by them shall also not be eligible as modvatable inputs for subsequent users. It has also been decided that modvat credit, whether in respect of inputs or capital goods, lying with the re-rollers, as on 1st August, 1997, shall lapse. 16. The small scale exemption benefit shall also not be applicable to re-rolled products with effect from 1st August, 1997. 17. The Commissioner of Central Excise are requested to kindly take necessary action to ensure that the scheme of section 3A as applicable to induction furnace units and re-rolling mills is implemented smoothly. The provisions may also be explained to the trade in clear terms to the manufacturers, particularly with regard to the option available under sub-rule (3) of rule 96ZP for re-rollers including the conditions and liabilities applicable. It seems that most of the assessees may opt for payment of duty under sub-rule (3) of rule 96ZP. 18. The above paragraphs explain the salient features of section 3A scheme as applicable to re-rolling mills. The scheme, in general terms, is on the same lines as that for the Induction furnace units. Thus the explanation on some of the common features of both the schemes are the same as contained in Circular No. 325/41/97-Cx, dated the 25th July, 1997. 19. The Notices may be issued on top priority basis. The officers may also explain to the manufacturers the provisions orally by holding meetings and conferences. Any error or omission in the notifications may kindly be brought to the notice of the undersigned immediately. Sd/- (T.R. Rustagi) Joint Secretary