Area based exemptions - Changes in refund scheme - Central Excise - Letter F.No. 354/34/2004-TRU(Pt.)

Letter F.No. 354/34/2004-TRU(Pt.) Dated 27-3-2008 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Area based exemptions - Changes in refund scheme. As you are aware, area based exemptions from central excise duty operating as refund scheme are currently in operation under various notifications as follows : (a) for North Eastern States under Notification No. 32/99-C.E. and 33/99-C.E. both dated 8-7-1999 and under Notification No. 20/2007-C.E., dated 25-4-2007; (b) for Kutch district of Gujarat under Notification No. 39/2001-C.E., dated 31-7-2001; (c) for Jammu Kashmir under Notification Nos. 56/2002-C.E. and 57/2002-C.E. both dated 14-11-2002; and (d) for Sikkim under Notification No 56/2003-C.E., dated 25-6-2003, No. 71/2003-C.E., dated 9-9-2003 and No. 20/2007-C.E., dated 25-4-2007. 2. In all these cases, the exemption operates through a refund mechanism. Thus, the manufacturer availing of the exemption is required to fully utilise 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 the 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 unit. The underlying objective of these exemptions is to incentivize genuine value addition in these backward areas. In order to achieve this in a more effective manner some changes/amendments have been carried out in these exemptions. These have been incorporated in Notification No. 16/2008-C.E. to 23/2008-C.E. all dated 27-3-2008. 3. The salient features of these amendments are as follows - (i) Goods covered by the scheme and manufactured by eligible units in the specified areas 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 unit in these areas. (ii) The rates of value addition for goods falling under different chapters of the Central Excise Tariff 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 a unit manufacturing cosmetics, classifiable under Chapter 33 works out to be Rs. 100 and the applicable rate of value addition is 56% (S. No. 3 of the Table), the amount of refund due to him would be Rs. 56 (100 x 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 filing 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 assessee 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 than 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/statements of the assessee for the preceding financial year. For the ease of computation, it has been prescribed that the assessee would furnish a certificate from his 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 claim. Any refunds made in the intervening period would be adjusted accordingly. (vi) These changes shall be effective from 1st April, 2008.