Remission of Duty - Central Excise Practice Manual (OLD) - Central Excise

REMISSION OF DUTY 'Remission' means waiver or cancellation of excise duty payable. Section 5 of CEA empowers the Central Government for remission of excise duty payable on the fully manufactured excisable goods which were destroyed or lost before removal from the factory. As per Rule 21 of CE Rules, 2002 where it is shown to the satisfaction of the Commissioner that - · Goods have been lost or destroyed by natural causes, or · Goods have been lost or destroyed by unavoidable accident, or · Goods are claimed by the manufacturer as unfit for consumption or for marketing, at any time before removal, he may remit the duty payable on such goods, subject to such conditions as may be imposed by him by order in writing. Procedure for availing remission of duty 1. The manufacturer shall make an application giving proofs of loss like fire report, insurance survey report, police complaint etc. Department should be informed as soon as possible after such loss or damage. 2. Remission of duty will be granted by the competent officer, according to the monetary limits, as follows: - · By Superintendent - if amount of duty is below Rs.10000 · By DC/ AC - if duty is between Rs.10000 to Rs.1 lakh · By Additional/ Joint Commissioner - if duty is between Rs.1 lakh to Rs.5 lakhs · By Commissioner - if duty amount exceeds Rs.5 lakhs · The Commissioner will send a report to the Board giving details - where the duty amount exceeds Rs.5 lakhs. If application for remission of duty is not made, duty cannot be demanded but penalty can be imposed for not following procedure. Only goods which are fully manufactured and entered in DSA (Daily Stock Account) will be granted Remission of duty. Remission will be granted even if the assessee has received insurance claim or has executed bond such as undertaking payment of duty in respect of goods stored and not claiming remission. However, no duty is payable on intermediate products used in the final products on which duty has been remitted, as remission of duty does not mean goods are exempt from duty or chargeable at nil rate of duty. Some of the cases where remission of duty will be granted provided such loss is due to 'natural causes' or due to 'unavoidable causes' but not on account of 'negligence of assessee': - · Remission will be granted even if the assessee has received insurance claim or has executed bond such as undertaking payment of duty in respect of goods stored and not claiming remission. · Loss of goods due to the fire in the factory. · Loss of goods such as molasses due to rain. · Loss of goods due to floods or seepage. · Loss on account of transit in open trucks and railway wagons during handling and transport if it is on account of natural causes. Following are the few examples where remission of duty will not be granted: - · No remission of duty in case of theft is allowed, since the goods are available for consumption elsewhere. Also, it is held that theft is not an unavoidable accident and if owner has not taken proper care, he is liable to pay duty. · Where molasses are said to be deteriorated but than they are sold as waste for other purposes, it cannot be said that the goods are 'unfit for consumption'. In such cases, remission from duty cannot be given. · No remission of duty is granted if goods are destroyed after they are cleared from the factory. · No remission of duty if goods get damaged after removal for export under bond. duty will become payable. Cenvat provision in case of remission of duty is allowed Sub Rule (5C) has been inserted to Rule 3 of the Cenvat Credit Rules, 2004 vide notification no. 33/2007 CE (NT) dated 7-9-2007 to provide that, "Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002 , the CENVAT credit taken on the inputs used in the manufacture or production of said goods shall be reversed." Earlier there were contrary views in respect of Cenvat provisions in case of remission of duty. With the insertion of the above provision, this controversy has been put to rest. This has been discussed by making reference to some case laws. In the following case decision for reversal of Cenvat credit was taken - In Mafatlal industries v. CCE 2003(154) ELT 543 (CEGAT) case, it was held that the Cenvat credit availed on duty paid inputs has to be reversed if final goods are destroyed in fire and remission of duty paid on final goods has been granted. They said that allowing credit of duty on inputs would amount to refunding of Cenvat credit on inputs, as it can be used for payment of duty on other final products. It appears from the case, that reversal was ordered to avoid double benefit i.e. from insurance company as well as by non-reversal of Cenvat credit. In the following case decision for non-reversal of Cenvat credit was taken - Whereas, in Electrolux Kelvinator v. CCE 2004 (163) ELT 395 (CESTAT) case, it was held that Cenvat credit on inputs used in final goods is not to be reversed if duty remission on final product is granted. They said that remission of duty does not mean goods are exempt from duty or chargeable to nil rate of duty, as, it is when final goods are exempt from duty that credit has to be reversed. Conclusion: - However, through the circular no.800/33/2004-CE dated 1-10-2004 issued by CBEC, it was decided that if remission is granted, Cenvat credit on inputs will not be available or the credit availed has to be reversed. They upheld the decision taken in former case. [But in our view, even if remission is granted, Cenvat credit availed should not be reversed as no provision has been made in Cenvat credit rules that if duty on final product is remitted credit of duty paid on input used in manufacture of final product destroyed cannot be availed.]