Application of section 3A of the Central Excise Act, 1944 to Induction - Furnaces - reg. - Central Excise - 325/41/97-CX

Circular No. 325/41/97-CX dated 25/7/97 F.No. B-31/4/97-TRU Government of India Department of Revenue Tax Research Unit, New Delhi Subject : Application of section 3A of the Central Excise Act, 1944 to Induction - Furnaces - reg. I am directed to refer to the provisions of section 3A of the Central Excise Act, 1944, which provides for levy of excise duty on such goods as may be notified for this purpose on the basis of annual capacity of production of the factory. 2. The Government have decided to notify ingots and billets of non-alloy steel classifiable under sub-heading Nos. 7206.90 and 7207.90 of the Schedule to Central Excise Tariff Act, 1985. These goods have accordingly been specified as "notified goods" under sub-section (1) of section 3A, vide notification No. 23/97-Central Excise (NT), dated the 25th July, 1997. 3. As consequence, rules have been notified for determination of the annual capacity of production of a factory producing such notified goods. These rules, known as the Induction Furnace Annual Capacity Determination Rules, 1997, have been incorporated in notification No. 24/97-CE(NT), dated the 25th July, 1997. 4. The salient features of these rules are mentioned below: (a) The rules apply to an induction furnace unit producing ingots and billets of non-alloy steel. They also apply to a factory which produces ordinarily these goods and also, incidentally, produces castings or stainless steel ingots. However, the determination of capacity shall be confined to ingots and billets of non-alloy steel. The castings or stainless steel products produced will continue to be charged normal tariff rate of excise duty of 15%. (b) The annual capacity of production shall be determined by the Commissioner of Central excise and shall be intimated to the manufacturer by of issue of an Order. (c) The capacity of production for any part of the year shall be calculated pro rate on the basis of annual capacity of production. (d) If a manufacturer proposes to increase or reduce the crucible capacity of the induction furnaces his factory, he can do so with prior intimation and the approval of the Commissioner and the date from which the changed capacity will come into operation shall be determined and intimated by the Commissioner. 5. It would be seen that, by virtue of the Induction Furnace Annual Capacity Determination Rules, 1997, the annual capacity of production of a factory has been deemed to be a fixed multiple of the total capacity of furnaces actually installed in the factory. Thus, for determination of annual capacity of production, the relevant parameter is the determination of the capacity of the furnaces installed in the factory. Once this capacity is known, the annual capacity of production of ingots and billets shall be taken to be 3200 times the capacity of the such furnaces (in metric tonnes). 6. In this context, it is understood that some induction furnace units have, what they call "idle" crucible. It is reported that at any point of time only one crucible is used and the other remains idle. In such cases, it is claimed, the induction furnace unit has one transformer and one electrical panel. As such the capacity of the induction furnace is relatable to crucible (s), excluding the "idle (spare or standby)" crucible. This aspect may kindly be examined on basis of facts of each such case and the furnace capacity may be ascertained accordingly. 7. It is understood that the capacity of a furnace (crucible) is generally indicated on the manufacturer's invoice which should be available with the factory producing ingots and billets. The capacity of a crucible size indicated on the manufacturer's invoice may be accepted. 8. Original copy of the manufacturer's invoices or any other relevant document which indicates the crucible capacity may be seen and attested by the Assistant Commissioner of Central Excise and its photocopy may be attested by him. On the basis of such "authenticated copies", the Commissioner of Central Excise may determine the annual capacity of production of the concerned factory and issue order accordingly. If the Commissioner, so desires, he the furnace (in metric tonnes) as also the annual capacity of production of ingots or billets by the induction furnace unite should be indicated. For details, rule 3 in notification No. 24/97-CE(NT) may be referred to. 9. Commissioners of Central Excise are requested to do this exercise promptly in respect of each factory. It is requested that such orders may kindly be issued and arranged to be communicated to the assesses by the Commissioner well before the 31st August, 1997. It is necessary because they have to decides as to the manner in which they would like to pay duty and also to pay the duty for the month of August, 1997 by the end of the month. 10. One most important aspect of the whole scheme is Rule 96ZO. It provides for option to the manufacturer to pay lumpsum amount in each month which will be deemed to be full and final discharge of his duty liability for the manufacturer of ingots or billets of mild steel. This is contained in sub-rule (3) of rule 96ZO. such amount will be paid on TR-6 challan. 11. According to the sub-rule (3) of rule 96ZO, if the total furnace capacity of a factory is 3 metric tonnes, the factory can exercise the option to pay an amount of Rs. 5 lakhs every month towards full discharge of its duty liability. It may be noticed that this amount is to be paid by the 10th of the month, except for the month of August, 1997 when it can be paid by 31.8.97. Otherwise, interest @ 18% per annum would become chargeable as mentioned in the rule. 12. It may also be observed that a manufacturer who wishes to exercise the option of discharging his duty liability under sub-rule(3) of rule 96ZO shall not be eligible seek for any benefit under proviso to sub-section (3) or sub-section (4) of section 3A. In other words, the manufacturer will not be allowed to claim any relief on account of non-operation of the factory for any continuous period of not less than 7 days [proviso to sub-section (3)]. Similarly, the manufacturer will not be allowed to claim any relief on account of the fact that the actual production was less than the capacity of production determined by the Commissioner. 13. If the total crucible capacity of a factory is more than 3 metric tonnes or less than 3 metric tonnes, the duty liability under sub-rule (3) shall be calculated pro rata. By way of simple illustration, if the crucible capacity of factory is 3.5 metric tonnes the factory will have to pay a sum of Rs. 5,83,334/- by way of his monthly duty liability. 14. A factory wishing to opt for sub-rule 93) of Rule 96ZO is required to exercise the option on their letter head in the simple proforma indicated in sun-rule (4) or rule 96ZO. 15. Sub-rule (3) of rule 96ZO is optional. The assessees who do not wish to opt for rule 96ZO(3), shall be required to pay duty @ Rs. 750/- PMT at the time of clearance, subject to their total duty liability being as mentioned in sub-rule (1) or rule 96ZO. Such assessee will have to maintain PLA and follow the normal procedure of accountal and payment of duty and also pay the difference if the total legal liability falls short after adjusting the amount already paid. This is explained by following illustration. 16. Suppose the capacity of production of a factory for the period 1.8.97 to 31.3.98 is 6400 x 750 i.e. Rs. 48 lakhs. Assuming that on the basis of payment of duty at the rat of Rs. 750/- PMT on day to day clearances, the factory has paid a total sum o Rs. 45 lakhs upto 31.3.98. In that event the factory is required to pay an additional sum of Rs. 3 lakhs by 31.3.98. this additional amount of Rs. 3 lakhs could be paid as one-time payment or in more than one instalment by way of on-account payments; but the total amount of Rs. 3 lakhs is required to be paid by 31.3.98. Otherwise, the factory is liable to pay interest at the rate of 18% p.a. which is to be calculated in the manner prescribed in the rules. 17. There are some other provisions made in the rules like how to claim rebate on account of closure of factory, etc. These are self-explanatory. Notifications may kindly be referred to for details. They could also be brought out in the trade notices for their benefit. 18. It is requested that the provisions of notification and rules may be brought to the notice of trade and industry urgently by issue of trade notices. It is also turers/ trade by the officers by holding meetings and seminars. 19. Necessary action may kindly be taken on priority basis for implementation of the above decision. The capacity of production may be determined and intimated to the factors on urgent basis. In particular, the assesses may also be informed about the provisions of rule 96ZO and suitable assistance may be provided to all those who wish to opt for sub-rule (3) of rule 96ZO. The liability of payment, and the conditions and limitations applicable, may be clearly explained to them. It seems that most manufacturers will opt for payment of duty under sub-rule (3) of rule 96ZO. 20. It has also been decided that modvat credit shall not be applicable to ingots and billets of non-alloy steel. The modvat credit, if any, lying in balance as on 1.8.1997 shall lapse. Notification No. 26/97-CE(NT), dated the 25th July, 1997 may kindly be referred to for details. 21. It may, however, be noticed that if a manufacturer produces castings or stainless steel products and also incidentally produces mild steel ingots or billets, such manufacturer would not be covered under section 3A. Accordingly, such manufacturers would pay normal excise duty of 15% under section 3 on all his products including ingots or billets of mild steel. Such manufacturer will be eligible to take modvat credit on the inputs used in the manufacture of mild steel ingots or billets also. Sd/- (T.R. Rustagi) Joint Secretary to the Government of India