CBEC have released Minutes of Tariff Conference held on 28th and 29th October, 2015 vide instruction F.No.96/85/2015-CX.I dated 07-12-2015. In the Conference several decisions regarding technical issues of assessment and applicability of law were taken. The issues and clarification which CBEC Released Minutes of Excise Tariff Conference are as under:
B1- Hyderabad Zone- Assessment and Valuation-Non-adoption of Section 4A-Valuation of Goods-Clearances made to Depots by Cement Manufacturers:-
Cement in packaged form has been notified under Section 4A of the Central Excise Act, 1944 with effect from 17.3.2012. The assessee affixes a label on the bags removed to its depots clearly stating, “meant for industrial/institutional consumer”. An audit objection has been raised in this zone for non-adoption of retail sale price based valuation on the clearances made to depots by a cement manufacturer, subsequently sold to industrial/institutional consumers. However, the assessee is clearing such consignments of cement in bags to their depots on the basis of value arrived as per Section 4 of the Central Excise Act, 1944, on the ground that the depot is nothing but an extended arm of the factory and when goods are sold to the industrial/institutional buyer, provisions of Section 4A do not apply.
Relevant legal provisions: Rule 3 of Legal Metrology (Packaged Commodities) Rules, 2011 states that the provisions of these rules shall not apply to industrial or institutional consumers, who buy packaged commodities directly from the manufacturer for use by that institution or industry. As per Rule 4 of Legal Metrology (Packaged Commodities) Rules, 2011, “no person shall pre-pack or cause or permit to be pre-packed any commodity for sale, distribution or delivery unless the package in which the commodity is pre-packed bears thereon or on a label securely affixed thereto, such declarations as are required to be made under these rules”. However, explanation to Rule 4 of Legal Metrology (Packaged Commodities) Rules, 2011 states that the existence of packages without the declaration of the retail sale price in the manufacturer’s premises shall not be construed as violation of these rules and it shall be ensured that all the packages leaving the premises of manufacturer for their destination shall have declaration of retail sale price on them.
Discussion & Decision
It was brought to the notice of the conference that the issue had been agitated before the appellate forum by some of the Commissionerates. After discussion conference concluded that depot is a place of removal of the manufacturer under section 4(3)(c)(iii) of the Central Excise Act, 1944 from where cement is sold to the institutional/industrial buyers who are not covered under Rule 3 of the Legal Metrology (Packaged Commodities) Rules, 2011. It was also noted that definition of ‘Industrial Consumer’ and ‘Institutional consumer’ has been substituted by Legal Metrology (Packaged Commodities) (Amendment) Rules, 2015 in terms of notification dated 14.05.2015, issued by the Ministry of Consumer Affairs, Food &Public Distribution.The revised definition includes the consumer who buys packaged commodities directly from the manufacturer or from an importer or from whole sale dealer.The conference was of the view that the valuation of goods in respect of clearances to industrial consumers even from the depot will be made under Section 4 of the Central Excise Act, 1944 and not under Section 4A of the Act ibid. The conclusion was reached in view of the fact that in case of institutional buyers purchasing goods, depot is only an extended arm of the manufacturer, being a place of removal. The issue is also covered in the Hon’ble Supreme Court judgment in case of M/s Sony India Ltd. [2004 (167) E.L.T 385].
B2- Jaipur Zone – Assessment and valuation-Retention of Sales Tax Collected from Customers and Inclusion thereof in the Transaction Value:
During the course of audit of certain units, it has been noticed that Government of Rajasthan has declared that the concerned manufacturer shall be eligible for Customized Package (a financial package) under Rajasthan Investment Promotion Policy-2010 (RIPS 2010) on fulfillment of conditions laid down therein. According to the scheme manufacturer shall be allowed subsidy (consisting of Investment Subsidy and Employment Generation Subsidy) for a period of 7 years. Under the scheme the maximum amount of subsidy shall be 55% of the total amount of tax i.e. VAT and CST which become due to be deposited into the government exchequer.
A doubt has arisen, whether such subsidy granted by the Industrial Department of Government of Rajasthan to the extent adjusted against sales tax liability is liable to be included in the transaction value under the provisions of Section 4 of the Central Excise Act, 1944. Concerned Zone also informed that the subsidy amount given by RIPS, 2010 is not paid in cash to the unit and is adjusted against the sales tax liability. The subsidy is itself calculated as a percentage of VAT/CST liability and VAT/CST actually paid is adjusted accordingly. In other words, the manufacturer collects and retains a percentage of sales tax amount as subsidy. Zone was of the view that the as a percentage of tax (max.55%) collected from the customer is retained by the manufacturer, it shall be includable in the transaction value as per the provisions ofsection 4 of the Central Excise Act, 1944.
Discussion & Decision
Board’s circulars/instructions were discussed by the conference. Instruction issued videF.No. 6/8/2014-CX.1 dated 17.09.2014 wasdiscussed. The said instruction was issued consequent upon the judgment of Hon’ble Supreme Court in the case of M/s Super Synotex India Limited, which clarified that Sales tax, collected from the customers but not paid to the Government under Sales tax incentive scheme, has the character of the consideration paid for transfer of title of goods from the manufacturer to the third party. Therefore, the same was required to be included in the assessable value.
Circular no. 983/7/2014-CX dated 10.07.2014 was discussed which clarifies that fertilizer subsidy paid by the Government to a manufacturer as a result of public policy is not includible in the assessable value. It was noted that such subsidy is directly paid by the Government to the manufacturer.
The conference concluded that any VAT, if retained would be added to the assessable value even if it is retained through the mechanism of adjustment against a subsidy payable under the scheme. Section 4 provides for abatement of taxes actually paid. Taxes can be considered to be paid for the purposes of granting abatement under Section 4 only if they are deposited with the exchequer. It was also notedthat the issue in circular dated 10.7.2014 was relating to addition of additional consideration whereas the present issue relates to allowing abatement of taxes actually paid. Therefore, the circular dated 10.7.2014 has no application to the present case. Further, fertilizer subsidy is directly paid by the Government to the manufacturer which is not the case presently at hand as the present scheme works by mechanism of adjustment of subsidy against taxes.
There is no abatement for taxes not paid, even when such taxes are considered notionally paid by adjustment against a subsidy payable by the State Govt. State VAT laws may considers VAT as fully paid in such situations but it is only a deeming fiction of full payment and not actual payment to the exchequer. Such deeming fiction would apply only for purposes of considering VAT fully paid under the State law and not for allowing abatement under Section 4 of the Central Excise Act, 1944.Definition of transaction value quite clearly states that transaction value does not include taxes actually paid.
B3 – Vadodara Zone-Assessment and Valuation- Whether the Excisable Products like Dish Washing Liquid, Floor Cleaner, Toilet Cleaners Falling under Tariff Items 34022010 and 34022090, Liable for Excise Duty by Assessing Value under Section 4 or Section 4A (MRP based assessment) of Central Excise Act, 1944.
The sponsoring zone explained that a doubt had arisen regarding the applicability of section 4A of Central Excise Act, 1944 in respect of excisable products like Dish washing liquid, liquid floor cleaner, liquid toilet cleaners falling under tariff items 34022010 and 34022090. The said goods at present are being cleared in retail packs of 250 ml/500 ml/ 1 litre in open market, under Section 4 of Central Excise Act, 1944, and the manufacturer is paying duty on the transaction value under Section 4 instead of under Section 4A of said Act (MRP based assessment). The sponsoring zone was of the view that the said products are liable for assessment under Section 4A (MRP based assessment) in view of Serial no. 40 of notification no. 49/2008 (N.T) dated 24.12.2008 which prescribes abetment for assessment under section 4A read with the third schedule of the CEA,44 .
Discussion & Decision
The conference noted that for assessment of any commodity under Section 4A, one of the conditions to be satisfied is that Central Government should have specified it in a notification issued under Section 4A. [para 2 of Jayanti Food Processing (P) Ltd, 2007 (215) ELT 327 refers]. In the present case, goods under discussion are covered in the third schedule of the Central Excise Tariff Act, 1985 but are not covered in the notification no. 49/2008 (N.T) dated 24.12.2008 issued under Section 4A. The scope of entry in the third schedule appeared to be larger than that of the entry in the notification and therefore assessment under Section 4A may not be possible for items not covered under the notification no. 49/2008 (N.T) dated 24.12.2008. Concerned zone may take final decision in light of the facts of the case and the case law cited.
B4 – Kolkata Zone – Assessment and Valuation – Fixation of special rate representing the actual value addition under Area based Exemption Scheme :
It was explained by the sponsoring zone that an assessee was engaged in the manufacture of various food products and cosmetic products under chapter 21 and chapter 33 and availing area based exemption notification no 20/2008-CE dated 27.03.2008 and 38/2008-CE dated 10.06.2008. The assessee had applied for fixation of special rate for the F.Y 2011-12. The Joint Director (Cost) Kolkata initially worked out the percentage of value addition based on the Value Addition Formula prescribed in the notification no 20/2008-CE dated 27.03.2008. But a re-working of actual value addition in respect of these products was carried out by the Joint Director adopting the formula prescribed in Cost Audit Report Rules, 2011 and taking into account two more ingredients viz (i) consumption of stores & spares and (ii) consumption of fuel indicated a different value addition. The Advisor (Cost) Kolkata expressed agreement with the recommendations of the Joint Director (Cost) and opined that subject matter being contentious, should not be decided for the time being. The jurisdictional Commissioner elaborated the logic of applicability of Cost Audit Report Rules, 2011. The issue has been brought before the conference as to whether the said Cost Audit Report Rules may be adopted for fixing value addition though these rules are not specified in the notification on area based exemption.
Discussions & Decision
The conference discussed the issue and after discussions concluded that the formula prescribed in the notification is binding for arriving at the value addition by revenue. It was beyond the authority of law to impose conditions in a notification not explicitly prescribed in the notification concerned. The sponsoring zone may make a detailed reference to the Board, suggesting change in the notification, if they deem it necessary. However, till the amendments are made in the notification, the formula as prescribed in the notification is required to be followed to arrive at value addition. As the present applications would be governed by the notification as they exist, they should be decided on the basis of the formula prescribed in the notification.
B.5 – Ranchi Zone – Classification – Classification of Silica Ramming Mass under Chapter Heading 3816 of CETA, 1985.
A large number of units situated in the jurisdiction of the zone are engaged in the process of crushing, screening, grinding and mixing of quartz / quartzite mineral stones (in boulder form) to convert them into quartz/ quartzite grains and powder, which is known in trade parlance as Silica Ramming Mass or Ramming Mass. The quartz/ quartzite mineral contain more than 95% of silica (up to 99.9%), hence the name. The quartz and quartzite minerals are not mixed with each other, since quartz mineral has higher silica content as compared to quartzite mineral. The assessees classify the aforesaid goods under chapter heading 2506 of CETA, whereas the zone is of the preliminary view that goods are more appropriately classifiable under Chapter heading 3816 of CETA in view of Chapter Note 1 of Chapter 25.
Discussion & Decision
The issue was deliberated in the Conference where, two heads of classification viz., CETH 2506 and 3816 were discussed in case of the product Ramming Mass of the kind obtained by crushing/grinding and mixing of quartz and quartzite minerals of different sizes and where no external binders are added to such mixture.
It was noted that explanatory notes to the HSN of Heading 3816 covers certain preparations (e.g. for furnace linings)¼, with an added refractory binder¼. Many of the products of this heading also contain non-refractory binders such as hydraulic binding agents, therefore, to qualify for classification under heading 3816, refractory binder is required to be added to such powdered/grained quartz/quartzite mixture. Since no refractory binder is added to the impugned product, the same is not covered under heading 3816. This view is reinforced by the Tribunal in the case of M/s Mayur Chemicals Industries [2001 (136) ELT 1389] upheld by the Hon’ble Supreme Court.
Chapter Note 1 of Chapter 25 is also relevant to this issue. Hon’ble CESTAT, in the matter of M/s 20 Microns Ltd. [2012-TIOL-1467-CESTAT-AHM] has held that specific heading has to be preferred to the general heading and Chapter 38 being a residual chapter, Chapter 25 is to be preferred. In this regard, para 10 of the CESTAT order is specifically relevant & may be referred where it has been explained that where no material of different composition is mixed, the exclusion clause of Note 1 of Chapter 25 does not apply. This view is reinforced by the observation of Hon’ble Supreme Court in the matter in the matter of M/s Deepak Agro Solutions Ltd. [2008-TIOL-98-SC-CUS]. Additionally, Rule 2(b) of the General Rules for Interpretation of Schedule provides that any reference to a given material or substance shall be taken to include a reference to goods wholly or partly of that substance. Accordingly, it was concluded that the impugned product, when not added with any external binder, shall be classified under Chapter heading 2506.
B.6 – Hyderabad Zone – Classification – Classification of Coconut Oil Packed in Packages up to Sizes of 200ml:
This issue relates to classification of Coconut Oil. There are two contending classifications of Coconut Oil under the Central Excise Tariff. Chapter 15 covers various types of Vegetable Oils including Coconut Oil and Chapter 33 covers Cosmetics including Hair Oil. The dispute with regard to classification of the product i.e. Coconut Oil arose after the Board’s clarification vide Circular no. 145/56/1995-CX dated 12.10.1995, wherein the Board clarified that the Coconut Oil being marketed in small containers could not be a basis for classifying the product as Hair Oil. For classification under Chapter Heading 3305, product should be suitable for use on hair and the product should be put up in a packing of a kind sold in retail for such use. Further, the Central Board of Excise and Customs, New Delhi vide Circular no. 890/10/2009-CX, dated 3/6/2009 issued under Sec. 37 B clarified that the Coconut Oil packed in small containers up to 200 ml shall be classified under Chapter Heading No. 3305 by treating it as Hair Oil.
Discussion & Decision
The conference noted that the issue has been resolved by the Board by issue of Circular no. 1007/14/2015-CX dated 12.10.2015. The circular takes note of the judgments in case of In case of Raj Oil Mills Ltd. vs. Commissioner, Central Excise [2014 (314) ELT 541/2013-TI0L- 1609-CESTAT], where Hon’ble Tribunal held that edible Coconut Oil in retail packing of 200 ml or less is classifiable under Chapter 15 covering Animal or Vegetable Fats and Oils and not under Chapter 33 covering Cosmetics and Toilet Preparation. Similar view was taken by Tribunal in case of Capital Technologies Ltd. & Ors Vs CCE, Tirupati reported in [2015(321) ELT 479/2011-TIOL-775-CESTAT]. The issue of classification can now be decided by the field taking into consideration the facts of the case read with the judicial pronouncements. For further details the circular may be referred.
B.7 – Kolkata Zone – Classification – Description of Goods under Tariff Item No 22029020 being “Fruit-Pulp or Fruit Juice Based Drinks”
The sponsoring zone pointed out that tariff item 22029020 provides description of goods as “fruit-Pulp or fruit Juice based drinks” but this description of goods seems incomplete as no percentage of fruit juice is mentioned. The rate of duty under this tariff item is lower than most of other tariff items of this chapter. This may lead to some assessees taking advantage and classifying goods of other headings into this heading. It is suggested that a percentage of fruit juice be mentioned against the CETH concerned.
Discussion & Decision
The conference noted that fruit juices [CETH 2009] and fruit pulp or fruit juice based drinks [ CETH 22029020] have same tariff rate of duty @ 6%. Thus all fruit juices and fruit pulp or juice based drinks attract same rate of duty. Tariff heading no 22029090 on the other hand was a residuary heading and would apply only when the goods under consideration do not find coverage under other tariff heads. Conference further noted that in the absence of specific product under reference with details of constituents and manufacturing process, it would not be possible to come to any firm conclusion. Therefore, conference did not recommend any amendment in the tariff.
B.8 – Lucknow Zone – Classification – Classification of Goods Known as TASLA
An item by the name of ‘TASLA’ of Iron and Steel is being manufactured in this zone and the assessee is classifying the same under tariff item 82019000 as “other Hand Tools of a kind used in agriculture, horticulture or Forestry”. The process of manufacture adopted is procuring the iron and steel sheet, slitting and cutting circles out of it and pressing them in the deep drawing double action power press giving it a deep shape and folding corner edges for convenience and safety. The local Commissionerate is of the view that the said goods are better classified under tariff item 73239410 as “Ghamellas” on the grounds that the party has mentioned the product on its website as “Tasla a.k.a Ghamella “. The local Commissionerate also relied on Rule 3(a) of the General Rules for the Interpretation of the Schedule to the Central Excise Tariff Act 1985 and the fact that the assessee sells their product at factory gate to the customers mainly situated in the city area. The end use of the product is in miscellaneous work and thus the claim of the party that their product is a tool for agricultural, horticultural or forestry use in field in not correct. The effective rate of duty in case of tariff item 73239410 is 12.5%. In view of the difference in rate of duty, the correct classification of the item needs to be decided.
Discussion & Decision
The conference discussed the issue after the details of the nature of the product and manufacturing process was explained by the sponsoring zone. It was noted that the scope of tariff item 7323 is in the nature of articles which are tableware and kitchenware and other household articles. In HSN these products are explained to include – Articles for kitchen use, Articles for table use and other household articles.
On the other hand tariff item 8201 applies to hand tools and other tools of a kind used in agriculture or forestry. Thus it is quite clear that for classification in tariff item 7323 the size and use of the product is relevant. From the description of the product as explained by the zone, it does not fit the description namely table, kitchen or other household articles of iron and steel. Specific heading of 73239410 meant for Ghamellas in the tariff would apply only to articles which qualify to be classified under tariff head 7323 and fits the description “Table, Kitchen or other household articles of iron and steel”. The quality of steel or iron is also a relevant consideration as goods need to be safe for use as kitchenware. In the present case these criteria are not satisfied. Classification of goods solely on the basis of description as Ghamella on website for sale is not a relevant consideration.
Rule 3(a) of the rules of interpretation has no application in the present case as rule 3 applies only as a sequel to rule 2(b). Rule 2(b) applies to mixtures and combinations, which is not the case at hand. The issue of classification of Shallow pan (ghamela/tasla) was also examined by Hon’ble tribunal in case of M/s Mehta Steel Industries [2000(120)ELT 583(Tri)] wherein it was held that “The product in question shallow pans apparently falls under Heading No. 82.01 of the Tariff as this heading covers not only hand tools, but also other tools of kind used in the agriculture, horticulture or forestry. The shallow pans are used in the agriculture, horticulture as well as forestry. The Asstt. Collector has rightly classified the product under this heading, keeping in view the Explanatory Notes under HSN. Being an implement of a kind used in the agriculture, Heading No. 73.26 of the Tariff as contended by the SDR, is not at all attracted in this case, as the same relates only to the other articles of iron and steel, forged or stamped, but not further worked. Keeping in mind the use of the product in question, and taking into consideration the HSN Explanatory Notes, the view taken by the Asstt. Collector as well as by the Commissioner (Appeals) classifying the product (shallow pans) under Heading No. 82.01 of the Tariff cannot be said in any manner erroneous so as to call for any interference in the appeal before us.”
The conference accordingly concluded that the ghamella/tasla of the kind described by the zone is correctly classified under tariff item 8201.
B.9 – Vadodara Zone – Classification – Classification of “Milking Machines and Dairy
Machines”- Whether Classifiable Under Tariff Item 84.18 or 84.19:
The Bulk Milk Cooler is described as an insulated tank made up of SS 304 stainless steel sheets with evaporators, direct expansion condensing unit and smooth agitation, which is installed at village unions of dairy co-operative societies and in the farms. This equipment is defined by the international standard ISO 5708 which require: to cool down the temperature of milk from 35 degree C to 4 degree C in less than 3 hours with an ambient temperature upto 38 degree C and then to keep the temperature of milk at 4 degree C constant so that the quality of milk doesn’t get deteriorated and bacteria are not generated in the milk. The unit classified the said product under tariff item 84342000 prior to 2011. However, after objection by the audit, accepting the suggestion to classify the goods under tariff item 84198990 instead of 84342000, the assessee started to classify “Bulk Milk Cooler” under tariff item 84198990 which attract duty @ 12.5%. References have been received from the Trade that in respect of the said product there is no uniformity of practice. Different classifications under contention in different zones are under the headings 8418, 8419 and 8434. Sponsoring zone requested that the scope of these headings and classification of the product may be decided.
Discussion & Decision
The issue was discussed in the conference with respect to scope of the three headings. It was noted that in the context of the goods under discussion heading 8418 applies to refrigerators, freezers and other refrigerating or freezing equipment; tariff item 8419 applies to machinery, plant for treatment of material by a process involving a change of temperature whereas tariff item 8434 applies to Milking machines and dairy machinery. Note 2 of chapter 84 interalia provides that a machine or appliance which answers to a description of one or more of the heading of 8401 to 8424 and at the same time to a description in one or other of the headings 8425 to 8480 is to be classified under appropriate heading 8401 to 8424 and not under heading 8425 to 8480. Further, as per HSN explanatory note to Chapter Heading 84.34, that machines for processing milk dependent essentially on the principle of heat exchange (heading 84.19) are excluded from coverage under chapter heading 84.34. The heading also excludes refrigerating appliance (whether or not specially designed for cooling or keeping milk and milk cooling vats incorporating evaporator of a refrigerating unit (heading 84.18) from Chapter Heading 84.34. Thus any machinery which answers to a description under headings 8418 or 8419 cannot be classified under heading 8434. This principle was upheld by Hon’ble Supreme Court in case of HMT Limited [2007 (214) E.L.T. 10(S.C.)] where milk/cream chillers and chilling plants were under consideration amongst other equipments for classification and classification under 84.34 rejected.
As far as classification under CETH 8418 is concerned, HSN notes for the heading provides that – “The refrigerators and refrigerating equipment of this heading are in the main machines or assemblies of apparatus for production, in a continuous cycle of operations, of low temperatures (in the region of 0 degree centigrade or less) at the active cooling element, by the absorption of the latent heat of evaporation of liquefied gases (e.g. ammonia, halogenated hydrocarbons), of volatile liquids or, in case of certain marine types, of water.” In case of M/s Praj Industries [2009(242)ELT 430], Hon’ble Tribunal decided classification of Bulk Milk Cooling Tank having following items viz. (i) Milk Vessel (ii) Ice Water Vessel, (iii) Cooling Coil, (iv) Condensing Unit etc. relying on the HSN notes decided the classification of goods under CETH 8418. Hon’ble Tribunal recorded the following argument as justification for classification of the equipment under the heading 8418 – “as per the explanatory note to CH. 8418, the temperature at the active cooling element is what is important and not the temperature of the refrigerated product. The cooling coil immersed in water generates ice of 38 mm diameter around it, thus producing cryogenic temperature.
“For scope of classification under heading 8419, two case laws were examined. In case of M/s Universal Heat Exchangers [2000 (122) ELT 770], Hon’ble Tribunal noted that Ammonia condenser, used by appellant in chilling of water is able to achieve cooling only up to 8OC and not freezing temperature which is around zero or sub-zero degree, hence it is not classifiable as refrigerating equipment . In case of Pan Asia Corporation [1999 (107) ELT 306] the distinction between the two headings 8418 and 8419 was explained by the tribunal to say that – A distinction is to be made between Tariff Heading 84.18 and 84.19. Cooling is no doubt affected by machineries and appliances falling under Tariff Heading 84.18 but the cooling should be of the range which a refrigerator or refrigerating machines achieves i.e. around zero or sub-zero temperatures. In the present case it is not disputed that the cooling effect is from 45oC to 6oC. Further it is also clear that it is not based on the refrigerating system. The lower appellate authority’s finding that the goods would be rightly classifiable under Tariff Heading 84.19 is correct.”
The conference noted that the Bulk Milk Cooler under discussion apparently achieves a cooling up to 4 degree centigrade in three hours. The information regarding whether the machine under discussion is a refrigeration machine and achieves zero and sub-zero temperatures around the cooling coil is not available in the reference, but if these two conditions are satisfied, then the Bulk Milk Cooler under discussion would be covered by the judgment in case of Praj Industries (supra) and the equipment would be prima-facie classified under 8418. However, the sponsoring Zone may verify the facts of the case and scope of the headings explained in the foregoing paragraphs and decide the classification
B10 – Ahmedabad Zone – Scope of Exemption to annealed Hot Rolled Patta Patti of
Chapter 72 under Sr. No. 203 of Notification No. 12/2012-CE dated 17.03.2012 :
The sponsoring zone explained that an assessee in the zone is engaged in the manufacture of stainless steel hot rolled patties and pattas and stainless steel cold rolled patties and pattas falling under chapter 72. They have cleared the annealed hot rolled patta and patti by availing exemption from payment of Central Excise duty under Sr. No. 203 of notification no 12/2012-CE dated 17.03.2012. There are certain intermediate processes between hot rolling and cold rolling. Hot-rolled pattas/patties are subjected to process like pickling and annealing to make them suitable for cold-rolling process. The zone was of the view that the exemption was intended for processes that are performed on the hot rolled pattas/patties such as pickling and annealing. The exemption was not available for hot rolling of Stainless Steel (SS) flats into pattas and patties as the raw material for hot rolling process is not patta/patti, but SS flats. Pattas/patties emerge only after hot rolling process. The zone also referred to the relevant part of the letter of J.S (TRU-I) vide F.No. B/31/8/94-TRU dated 4-5-
1994 which is reproduced below –
” Thus, all stages prior to the stage of cold rolling have been exempted from excise duty. This would cover hot rolling of pattas and patties processes such as annealing, pickling etc.”
The zone was of the view that the exemption covers only processes such as annealing, pickling etc carried on hot rolled SS flats. Had the intention been to exempt hot rolling process too, then it could have been clearly mentioned along with annealing and pickling.
Discussion & Decision
The conference examined the tariff heading involved, exemption notification and the clarification issued by TRU and concluded that clarification was clearly worded with no room for doubt. All processes prior to cold rolling are eligible for exemption from duty under sr. no. 203 of notification no. 12/2012-CE dated 17.03.2012. It appeared that the view of the zone was premised on the interpretation that the expression patties and pattas do not include stainless steel flats. There is no reason for such interpretation as the expression patties and pattas have to be understood in terms of general trade parlance and would include stainless steel flats. Benefit of exemption was available to the process of hot rolling of SS flats.
It was also observed by the Member(CX) that field officers are bound by the clarifications and letters issued by the Board and where they have a contrary view, it should be referred to the Board. It was expected that the Chief Commissioners would take steps to ensure that the clarification issued by the Board are implemented in right earnest.
B11 – Chennai Zone – Scope of Exemption Notification No.12/2012-CE dated 17.3.12
(Sl.No.336 dealing with ICB):
Sponsoring zone explained that in terms of sl.no 336 of notification no. 12/2012-C.E dated 17.3.2012, all goods supplied against international competitive bidding attract nil duty subject to the condition prescribed under sl.no. 41. The condition specifies that “if the goods are exempted from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975(51 of 1975) and the additional duty leviable under section 3 of the said Customs Tariff Act when imported into India”. The customs exemption prescribes conditions which have to be adapted for granting exemption from Central Excise duty in view of condition 41. This leads to dispute regarding interpretation of the conditions as they are amenable for Customs exemption and not for Central Excise notification. In this connection, reference was invited by the zone to CESTAT Order in the case of AUDCO India Ltd.[2013 (297) ELT (Tri Chennai)]. Relevant portion of the order is reproduced below:
” The present dispute has arising basically because of the fact that the Excise duty exemption has been provided with reference to exemption for Customs Duty and the condition that are appearing in the Customs notification has not been adopted to suit claiming excise duty exemption. There is necessity for making changes if the exemption from excise duty is to be meaningful. In the first place, there is no importer involved when goods are manufactured in India or supplied in India. Similarly, customs assessment and duty payment are before clearance of the goods whereas for excise levy the system is of self-assessment and duty payment at the end of the month, though the requirement for producing the certificate also needed suitable change. Similarly, Customs notification is applicable to a contractor or a sub-contractor when they import goods. So confusion arises as to who has to satisfy the purchaser. Comparing with the situation of import, the purchaser has to satisfy the condition. But these are all logical interpretation and not explicitly provided in the notification. When goods are imported by the contractor, or sub-contractor, the end use verification become easy with reference to the auditing the books of accounts of these persons. A mechanism will be required to ensure proper end-use in the case of goods manufactured in India and supplied to such contractors or sub-contractors which has not been prescribed in the Excise notification. Now the option before us is to hold that Excise Duty exemption under such notification will not be applicable at all to any clearances by a strict interpretation of the condition as canvas by revenue or to hold that the excise duty exemption is to be made available subject to necessary changes read into the conditions prescribed under Customs notification. The former interpretation is not justified because to our mind it is implied that the condition prescribed in Customs Notification is to be read mutatis mutandis for excise exemption. Once the later proposition is agreed to, we are of the view that correct interpretation is that the goods should have been supplied to the contractor or sub- contractor who has used the goods in oil exploration activity, the exemption should be available. In the present case, such condition has been satisfied in the case of supplies to M/s. Reliance Industries Ltd though after clearance.”
Sponsoring zone suggested that in order to avoid this kind of dispute, the conditions prescribed under Customs notification may be incorporated under the Central Excise notification.
Discussion & Decision
Conference after discussion noted that necessary amendment to notification no.12/12-CE dated 17.3.12 has already been made vide notification no 12/2015-CE dated 01.03.2015. A proviso has been incorporated in the condition no. 41 of the notification to provide that the conditions for exemption in the Customs notification shall apply mutatis mutandis for the purpose of said Central Excise notification. It was further clarified that the phrase “mutatis mutandis” in the said amendment would mean – “with such changes as are required” to make the exemption notification operational on Central Excise side also.
B12 – Coimbatore Zone – Scope of SSI Exemption- When there is a Deed of Assignment of Brand Name Within the Hindu Undivided Family (HUF):
The sponsoring zone explained that in a case noticed in the zone, a HUF owned a particular brand. Each of the members of the HUF was allotted different areas of operations by virtue of a deed of assignment. Each member was manufacturing and clearing excisable goods, using the same brand name, within his allotted area, with each of them separately availing the threshold SSI exemption. The Hon’ble Supreme Court has stated in this case i.e. where a Brand Name has been assigned to members of HUF that the trademark would remain vested with all the members and that all of them are separately eligible for SSI exemption. The sponsoring zone was of the view that the provision is prone to misuse and there was a need for amendment in the SSI notification no 8/2003-CE dated 01.03.2003.
Discussion & Decision
The conference noted that the issue has been decided by the Apex Court in the case of M/s Kali Aerated Water Works [2015 (320) E.L.T. 692(S.C.)] where joint family business dissolved by Deed of Mutual Agreement, which provided that all parties were allowed to use the said brand name without payment of any royalty or remuneration to the other party. Each member was owner of the Brand and was entitled to SSI exemption. This situation was peculiar to HUF where the brand name could be assigned to various members by a deed of assignment. The said interpretation is unique to HUF and may not be in widespread use adversely affecting the revenue and therefore conference does not recommend amendment in the notification.
B13 – Hyderabad Zone – Scope of exemption- admissibility to intermediate goods used inthe manufacture of cement supplied to SEZ units:
Notification No. 67/95-CE dated 16-03-1995 provides duty exemption to captively consumed inputs in the manufacture of dutiable final products. Exception to this notification is that this duty exemption is not applicable, if the final products are exempted from duty payment or attract nil rate of duty. An exception to this exception is when clearance of final products is made to a unit in Free Trade Zone (FTZ), a 100 % EOU and a unit in Hardware Technology Park or Software Technology Park. Thus, when final products are supplied to FTZ, EOU etc intermediate products continue to be exempted. Now, FTZ scheme does not exist and existing EPZ/FTZ have been notified as SEZ. The issue is whether the benefit of exemption to the intermediate product is available when final products are supplied to the SEZ. The issue has been discussed in the past tariff conference also but no final view was taken. Show Cause Notices have been issued in the zone on the subject.
Discussion & Decision
The conference after discussion noted that the issue has been decided by the Tribunal in case of M/s Ultratech Cement and other manufacturers [2015-TIOL-2110-CESTAT-Mad] where the Tribunal decided that benefit of exemption to intermediate products is available when the final products are supplied to SEZ. Hon’ble Tribunal noted that during the relevant period of dispute, no FTZ was in operation and therefore no clearance could be made to FTZ as this was a period after the enactment of SEZ Act on 10.02.2006. Once the SEZ Act came into effect from 10.02.2006, all the units functioning as FTZ were declared as SEZ units. notification no. 4/2003-CE, dated 30.03.2003 was issued to convert various FTZs into SEZs. Further, as per the Notes explaining clauses of the Finance Bill, 2007 (clause 106), after enactment of SEZ Act, FTZs have become redundant and hence it sought to amend sub- section (1) of Section 3 of the Central Excise Act. By virtue of the above amendment, the word FTZ was omitted and substituted with the word SEZ in section 3 of the Central Excise Act, 1944. Consequently, tribunal concluded that now the expression FTZ in the notification no. 67/95-C.E. needs to be read as SEZ and the benefit of exemption extended to the intermediate goods when final goods are supplied to SEZ. Conference accepted this view and concluded that benefit of exemption should be extended to the intermediate goods when final goods are supplied to SEZ. Conference also recommended to the Board that notification no 67/95-C.E. should be amended to avoid litigation on the issue.
B14- Chennai Zone – Scope of exemption- under the Central Excise Notifications should be appended to the notifications:
Amendments made to Rules and Notifications are notified with only the text or entry which amends the existing text or entry as the case may be. Subsequently, clarifications are issued in some cases to clear the doubts arising on the impact of the amendments. The sponsoring zone was of the view that to avoid disputes owing to interpretations, all amendment notifications should be appended with a clarification in the notification itself or a circular should be subsequently issued to explain the effect of the amendment.
Discussion & Decision
The issue was deliberated. The general opinion was that while clarification may be issued where necessary but not in all cases particularly where the language of the notification or amendment in the rule is quite clear.
B15 – Meerut Zone -Scope of Exemption-Duty Rate applicable to ‘Mobile Handsets’ in terms of Notification No. 12/2012-CE Dated 17.03.2012:
Central Excise duty @ 1% is applicable for manufacture of ‘Mobile Handsets’ in terms of Sr. No. 263A to the notification no. 12/2012-CE dated 17.03.2012 subject to condition that no credit under Rule 3 or Rule 13 of the CENVAT Credit Rules, 2004 has been taken in respect of inputs or capital goods used in the manufacture. Units manufacturing Mobile Handsets are Sourcing inputs required to manufacture Mobile Handsets at ‘NIL’ rate of duty in terms of S.No. 431 of the notification no. 12/2012-Cus dated 17.3.2012 subject to the condition that the importer follows the procedure set out under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. The duty foregone on such imports ranges from 17.5% to 28.5% (approx.). However, if Cenvat Credit is availed on the inputs used for the manufacture of Mobile Handsets, the applicable rate of Central Excise Duty is @12.5%. It appears that the prescribed duty rate of 1% is very low compared to the duty foregone or duty incidence at the input stage. Further, condition of not availing credit on input services or utilization thereof for the purpose of payment of Central Excise duty on Cellular phones, should also be incorporated in the condition of the notification no. 12/2012-CE as substantial revenue is being paid by the units from the Cenvat credit availed on input services.
Discussion & Decision
Conference discussed the language used in the exemption notification and the conditions prescribed therein and noted that the language of the exemption notification is quite clear. Duty rate applicable for manufacture of ‘Mobile Handsets’ in terms of sl. no. 263A to the notification no. 12/2012-CE dated 17.03.2012 is 1% subject to condition that no credit under Rule 3 or Rule 13 of the Cenvat Credit Rules, 2004 has been taken in respect of inputs or capital goods used in the manufacture. So long as the conditions in the notification are satisfied, the benefit of the concessional rate is available. An exemption notification is required to be implemented by the field formations without going into the policy intent behind it, if the language used in the notification is clear. For example, it is not relevant for the field formation to examine whether the effective duty rate of 1% is appropriate or whether any credit of input services is available to be taken or not. Once the condition of not availing credit in respect of inputs and capital goods as prescribed is fulfilled, the effective duty rate consequent upon exemption is only required to be paid giving full effect to the exemption notification.
B.16 -Vadodara Zone- Scope of Exemption- parts of wind-mill :
There exists ambiguity regarding exemption to parts of wind-mill in light of Tribunal’s order in the case of M/s. Gemini Instratech Pvt. Ltd. V/s. Commissioner of C. Ex.,Nashik [2014(300)
ELT 446 (Tri-Mumbai)]. On the other hand, Hon’ble Supreme court in case of M/s. Corporation Ltd. V/s. Commissioner of C.Ex., Calcutta [2006 (203) ELT 362 (S.C.)] had held that insulated wires and cables are not parts of wind mill which is complete in itself without electric cables, although wind mill may not be able to function without these cables, hence the benefit of exemption is not available to Cables and wires. Further, in case of M/s. Enercon (India) Ltd., Authority of Advance Ruling had ruled that entry “Wind Operated Electricity Generator” covers the generator per-se and it is not intended to include equipments which are deployed with the generator for production of electricity. The sponsoring zone was of the view that the towers and others parts, which are not directly related to generation of electricity would not be eligible for exemption. In view of the sponsoring zone, it would be desirable that the list of equipments/parts/components eligible for exemption may be spelt out in the Exemption Notification.
Discussion & Decision
It was noted in the conference that a clarification has already been issued on 20.10.2015 vide Circular No. 1008/18/2015-CX by the Board wherein details of parts on which exemption is available is specified. Ministry of New and Renewable Energy had clarified to CBEC that tower, nacelle, rotor , turbine controller are parts of wind turbine and accordingly the circular has been issued clarifying that exemption is available to these parts. For details, the above noted circular may be referred.
B.17 – Vishakhapatnam Zone – Scope of Exemption- Manufacture under Central Excise –
Clearances to Nepal with reference to Exemption Notification No. 8/2003-CE:
In terms of SSI notification no. 8/2003-CE dated 01.03.2003, computation of clearances for home consumption, wherever referred in the notification, shall include clearances for export to Bhutan and Nepal. However, with effect from 01.03.2012, export clearances to Nepal have been made at par with all other countries. Further, CBEC vide Circular No.961/04/2012-CX dated 26.03.2012, has clarified that, in respect of Nepal, even if the export proceeds are received under Indian rupees, the clearances are still eligible for rebate or refund as the case may be. In such a case, it is not known why the export clearances to Nepal are still being considered as home clearances with reference to the limit of exemption available to an SSI under the notification referred. The condition in the notification is restricting the benefit to the Small Scale Manufacturers to the extent of clearances made to Nepal. Clarification is needed in view of the change in the treatment given to Exports to Nepal w.e.f. 01.03.2012.
Discussion & Decision
The conference agreed that it was a valid suggestion and there was a need to amend notification no. 8/2003 – CE dated 01.03.2003 to bring parity in the exports to Nepal under various notifications. The conference recommended that Board may examine the same However, it was also agreed that till the necessary amendments in SSI exemption are made, the present dispensation of treating exports to Nepal as domestic consumption shall continue to apply.
B.18 – Chennai Zone – Cenvat Credit – Amendment to Notification No. 67/95-CE dated 16.03.1995 [Exemption for captive consumption]:
Notification No. 67/95-CE dated 16.03.1995 grants exemption to intermediate products manufactured and consumed captively for the manufacture of dutiable goods. However, the above exemption is not applicable if the intermediate products are used for the manufacture of final products which are exempted from duty or chargeable to nil rate of
duty. The relevant proviso is reproduced below:
“Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of the [duty of excise or additional duty of excise leviable thereon] or are chargeable to nil rate
of duty, other than those goods which are cleared :-
(i) to a unit in a Free Trade Zone, or
(ii) to a hundred per cent Export Oriented Undertaking, or
(iii) to a unit in an Electronic Hardware Technology Park, or
(iv) to a unit in a Software Technology Park, or
(v) under notification No. 108/95-Central Excise, dated the 28th August, 1995, or
(vi) by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in [rule 6 of the CENVAT Credit Rules, 2001.] ”
By virtue of the exception as mentioned in sl. no. (vi) of the above proviso, a manufacturer, producing dutiable and exempted products, would be eligible for exemption on captively consumed goods, if he discharges the obligation prescribed under Rule 6 of the Cenvat Credit Rules. The above condition was justifiable and reasonable when the erstwhile provisions of Rule 6 stipulated payment of an amount @10% or 8% of the value of exempted final product. w.e.f. 01.04.2008, Rule 6 of Cenvat Credit Rules provides for two options viz. Rule 6(3)(i) – payment of 6% value of the exempted goods or Rule 6(3)(ii) – reversal of proportionate credit as per the formula prescribed.
In view of the above changes made in 2008, if a manufacturer reverses proportionate credit, he would be entitled for captive consumption exemption and consequently the value addition for the manufacture of intermediate product is escaping the tax net. For example, sugar manufacturer claims captive consumption exemption for molasses which are used for manufacture of ethyl alcohol, a non-excisable product, by reversing negligible portion of Cenvat credit taken. While it is necessary to grant exemption to intermediate products used for manufacture of specified final product as mentioned under Sl.no. (i) to (v), there is no justification for extending the exemption by prescribing reversal of proportionate credit. This proviso not only results in revenue loss but also leads to disputes. It is, therefore, suggested that either of the following suggestion may be considered:-
a) Sl.No.(vi) of the proviso to Notification No.67/95-CE can be omitted so that the manufacturer can pay duty on the intermediate product on comparable value, if available or on the value arrived at as per CAS-4 methodor
- b) The words & figures “Rule 6 of Cenvat Credit Rule, 2001”, may be substituted by Rule 6 (3)(i) of Cenvat Credit Rules, 2004 so as to prescribe payment of 6% of the value of exempted final products.Discussion & DecisionThe alternative mechanisms prescribed in Rule 6 of the Cenvat Credit Rules, 2004 was intended to offset the Cenvat credit taken in proportion to the exempted goods/services. Thus, payment of an amount equivalent to 6% of value of exempted goods/services was an alternative to Cenvat credit reversal and both the alternatives were on equal footing. The intention behind this provision was not to charge any duty/amount equivalent to 6% of value, rather it was a simplified procedure for the assessee to comply with the provisions without maintaining separate records. Accordingly, the payment of 6% amount cannot be considered to be at a different footing as compared to credit reversal. In light of this it was concluded that there was no need to amend the notification. Conference concluded that exemption is available to the intermediate products manufactured by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in rule 6 of the CENVAT Credit Rules, 2004 and such manufacturer has the option of choosing any of the alternatives provided in rule 6.
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