Finished Goods Exempt Provided the Inputs are Duty paid and No CENVAT Credit availed- CBEC to issue clarification to avoid unwanted Litigation

[CS SANJAY MALHOTRA]

Textile Goods (Chapter 50 to 63) – Finished Goods Exempt Provided the Inputs are Duty paid and No CENVAT Credit availed- CBEC to issue clarification to avoid unwanted Litigation

Ref: Notification No. 34/2015-CE dated 17.07.2015 (Amendment to Notification No. 30/2004-CE dated 09.07.2004)

• CBEC has recently issued Central Excise Notification No. 34/2015-CE dated 17.07.2015 thus amending the Notification No. 30/2004-CE dated 09.07.2004 by substituting the Provisions as below. There exists divergent views as to whether the amendment has resulted into levy of Excise Duty on textiles goods falling under Chapter 50-63 if the newly inserted provisions is not complied with:-

Extracts from Notification No. 34/2015-CE dated 17.07.2015:-

“Provided that the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004.”

Extracts from Notification No. 30/2004-CE dated 09.07.2004:-

“Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs has been taken under the provisions of the CENVAT Credit Rules”

DIVERGENT VIEWS- CBEC CLARIFICATION REQUIRED FOR IMPACT OF AMENDMENT IN NOTIFICATION No 34/2015-CE dated 17.07.15

• Textile Goods attracts EXEMPTION from Central Excise Duty on the basis of Notification No. 30/2004-CE dated 09.07.2004 subject to the condition that “NO CENVAT credit has been availed on Inputs”.

• Would Textile Goods be eligible for EXEMPTION from 17.07.2015 “provided the “Appropriate Duty of Excise leviable” has been paid on Input (Raw Material) and No CENVAT Credit has been availed under provisions of CENVAT Credit Rules 2004.

Inputs which are “Exempted from CENTRAL EXCISE duty” or attract “NIL Rate of Duty” as per Central Excise Tariff Act 1985 will not be eligible for DUTY EXEMPTION, as “appropriate duty of Excise” does not include the goods exempted from duty or chargeable to “Nil rate of Duty”. (Refer Apex Court decision in the case of CCE Vadodra Vs Dhiren Chemical Industries) & CBEC Circular No. 667 dated 26.09.2002.

Refer Citations : COLLECTOR OF C. EX., VADODARA Versus DHIREN CHEMICAL INDUSTRIES [2001 (12) TMI 3 - SUPREME COURT OF INDIA]

Circular No. 667/58/2002-CX dated 26^th September, 2002

• Circular No. 125/36/95-CX, dated 15^th May, 1995 clarified that the word “Appropriate Duty of Excise has been paid ” includes “NIL Duty goods” also but the Supreme Court Judgment in the case of CCE Vadodra Vs Dhiren Chemical Industries “held that the word “appropriate” in the context of such exemption notifications means the correct or specified rate of excise duty, and that where an exemption is extended subject to the condition that the “appropriate duty has been paid” on the raw material, then such exemption shall not be available when the raw material is not liable to excise duty or such duty is nil.

[Would the above bar is applicable for Notification No. 34/2015-CE dt. 17/07/15]

• What would be the treatment of Raw Material purchased directly from market???? Would that be considered as Deemed to be duty paid irrespective of whether the Excise Duty has ‘”NIL rate in Tariff” or enjoys Exemption by virtue of any Notification?????

• In the earlier Notifications No. 14/2002-CE dated 01.03.2002 the phrase “appropriate duty of Excise has already been paid” was mentioned and in the recent Notification No. 34/2015-CE- dated 17.07.15, the phrase has been amended to “appropriate duty of excise leviable has been paid”??? Would that mean that if the Raw Material is not leviable to Excise Duty, even then the benefit of Exemption Notification No. 30/2004-CE dated 09.07.04 holds good for Finished Goods?????

• What would be the treatment for Composite Mills who undertakes activity of Spinning of Yarn, Grey Fabrics and then processing of textile fabrics and sales afterwards? Do they have to pay Duty as per Notification No. 34/2015-CE dated 17.07.15 as their intermediate goods i.e. Yarns, Grey fabrics are subject to Nil Duty as per Notification No. 30/2004-CE dated 09.07.2004.

Hope CBEC would come out with clarifications timely and avoid unwanted litigations and divergent business practices….

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In continuation to my article on Notification No. 34/2015-CE dated 17.07.2015, the matter was taken up with various officials of the department and it's interesting to note that even the departmental officers does not have clarity what to communicate exactly to assessee's in respect of duty liability, whether the goods are still exempted if no duty is leviable on inputs or otherwise.

We understand that CBEC does not want to take Finished Goods out of duty exemption in cases where the Inputs are chargeable to NIL rate of duty or are exempt by virtue of some Notification, but the wrongly worded phrase "Appropriate Duty of Excise leviable has been paid" has put them in trouble as the same as clarified by CBEC in Circular No. 667 dated 26.09.2002.

Commissioners at various jurisdictions are of the view that Excise Duty has been imposed on Textile Goods if the raw material is exempted from Duty, but still some are of the view that Industry players misinterpretation is wrong. To bring the facts of Department's interpretation, please go through below Trade Notice issued by Commissioner at Surat thus mentioning Trade to take registrations and declare stock with Central Excise offices.

CBEC should without delay come out with clarification so thatr Industry should go ahead and make clearances which are struck up for the past 2 days.

Trade Notice No. 03/2015