SSI Exemption - Determination of Turnover of the previous year of 4 crores, Central Excise

[Rama Krishana]

As per the Paragraph no. 3A of the Notification no. 8/2003 CE dated 1.3.2003 for the purpose of Calculation of Rs. four hundred lakhs (4 crores) of the previous year, certain amount shall be excluded. Other than excluded items, all turnover of excisable goods shall be included.

My query is related to the term "excisable goods" used in the SSI exemption notification above.

As per Section 2(d) of the Central Excise Act, 1944, (d) "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;

Now my query is whether the value / turnover of the goods where Goods are specified in the Tariff itself with empty tariff rate (e.g. Goods falling under Chapter 12 of CETA) and with Nil tariff rate (e.g. heading 53.01 of CETA) are "excisable goods" as being Subject to duty of excise.

Because if these are "excisable goods", the value shall be included in the turnover of the previous year and if these are not "excisable goods", the value shall not be included in computing the limit of 4 crores.

I have no doubt that goods exempted under a notification are "excisable goods" and are liable to be included as above.

But the doubt arises in respect of goods where tariff rate itself is empty or tariff rate itself is Nil.

Posts / Replies

[CS SANJAY MALHOTRA]

Dear Mr. Rama Krishana,

Once the goods are specified in the Central Excise Tariff, the same holds the character of "Excisable Goods" irrespective of whether the duty is leviable / Exempted by virtue of some exemption notification / NIL Duty Goods.

Turnover of Excisable goods is included while determining Turnover of ₹ 400 Lacs (untill and unless specifically provided for exclusions, such as Export, Deemed Export, Manufacturing of branded goods) whereas Turnover of "Non Excisable Goods"" (not specified in Excise Tariff) are excluded. NIL Tariff duty goods are not excluded while determining the limit of ₹ 400 lacs.

Further the Notification No. 08/2003-CE dated 01.03.2003 specifically provides for Non inclusion of ""Goods chargeable to NIL rate of duty or are Exempted from duty of Excise in determining the value of first clearances of ₹ 150 Lacs.

Please do refer Annexure to Notification No 08/2003-CE also as the same specifies the list of goods which don';t qualify for SSI Exemption. Chapter 53 is also there except ITC Codes 53.01 to 53.05, 53.08.

 

[Rama Krishana]

Dear Sanjay Ji

You are correct and I agree with you to some extent also since the same thing is being taught and spread about the term "excisable goods" since long.

But, my request is that please examine definition of "excisable goods" given in the section 2(d) of the CEA, 1944 which is divided in two parts

(i) goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)

(ii) as being subject to a duty of excise.

Where tariff rate are empty itself or provides Nil rate, whether such goods would be held as "subject to a duty of excise"

Therefore, it need to be examined the depth and scope of the term "subject to a duty of excise" before deciding that goods are "excisable goods" or not.

Please elaborate.

[KASTURI SETHI]

Sh.Rama Krishana Ji,

The excisable goods attracting 'NIL'rate of duty' as per Central Excise Tariff Act (and mentioned in First Schedule and Second Schedule) shall be included for determination of turnover of ₹ 400 lakhs as per Notification No.8/2003-CE dated 1.3.2003. Turnover of only non-excisable goods to be excluded for arriving at ₹ 400 lakhs.. Exempted goods chargeable to NIL rate of duty are also excisable goods. This is in addition to other inclusions/exclusions for computing turnover ₹ 400 lakhs.

[CA Surender Gupta]

Dear Kasturi Sethi Ji

There is no doubt or question about the scope of inclusion or exclusions of certain items from the turnover of "excisable goods" as per the Para 3A of the Notification no 8/2003 CE dated 1.3.2003.

The query is on the basic term "excisable goods". If the goods are excisable then only the scope of inclusion or exclusion comes into picture. If goods are not excisable, there is not question of inclusion or exclusion.

Therefore a detailed and depth examination of section 2(d) is required to see whether goods are "subject to a duty of excise" in case tariff rate is empty or Nil.

Please elaborate on the concept of the term "subject to a duty of excise" under section 2(d) of CEA, 1944.

[CS SANJAY MALHOTRA]

Dear Friends,

Nil Duty Tariff rate does not mean that the goods are not Excisable Goods. Their character remains that of Excisable as the same are exempted from Duty either with or without condition.

Mr. Kasturi ji rightly mentioned that Excisable Goods includes Exempted Goods and the definition of Exempted Goods includes Goods chargeable to NIL Rate of Duty and Exempted from whole of Duty of Excise. (Refer Rule 2D of CCR 2004 for Definition of Exempted Goods).

Sec 2(D) of Central Excise Act mentions of Excisable goods falling under First & Second Schedule irrespective of the rate of duty....

Supplementary Mannual of CBEC has even specified that the Term Excisable includes both dutiable and not dutiable goods.

Just imagine what happens if the goods are subject to NIL Tariff for part of year and to Duty for another part of year. It will not make difference as to character of goods. At both stage goods will remain Excisable and uniform treatment applies to SSI exemption. Treating altogther different would invite never ending litigations.

 

 

 

[CA Surender Gupta]

As per my understanding, the question of Exemption comes when goods are subject to duty. A notification issued u/s 5A to exempt the goods where the duty of excise is levied and government exempts goods from duty of excise.

Where goods are mentioned in the tariff as Empty rate of duty or Nil rate of duty, how can we call such goods as exempted goods?

[CS SANJAY MALHOTRA]

Dear Surender ji,

Section 5A empowers Central Govt to issue Notification thus providing Exemption to Goods specified in Tariff. You will appreciate the fact that the character of Goods can either be EXCISABLE or NON-EXCISABLE and nothing else.

EXCISABLE includes exempted goods as the Central Govt by powers granted under Sec5A exempts the goods considering its need at particular point of time and may reimpose the duty afterwards. Hence the goods remain excisable and change in duty structure makes them qualify as Excisable or Exempted Goods.

Imagine a situation wherein someone Exports goods which are chargeable to NIL Rate of Duty. Will that mean that they are not considered Excisable Goods even when they are subjected to NIL Rate of Excise. Had the case been so, it would have not have been feasible to claim rebate / refund for Input duty from department.

Further Central Excise Tariff Act is in place since 1985 and by virtue of Notifications issued under Sec 5A of Central Excise Act, goods have been subjected to Exemption i.e. to NIL rate of Duty. Hence it is out of place not to treat the same as exempted goods. Furthermore the CENVAT Credit Rules are confimed to Excisable and Exempted in terms of CENVAT Reversal, etc etc......

Exempted goods defintion has not been challenged for NIL rate of duty goods as on date.

You have valid point which can be taken up in higher courts subject to the condition that the goods have been placed under NIL rate since inception and without being back up of any Notitication under Sec 5 or 5A providing exemption thereon...

 

[Rajagopalan Ranganathan]

Sir,

Under para 3A of the Notification NO. 8/2003-CE as amended it is stated that "For the purposes of determining the aggregate value of clearances of all excisable goods for home consumption, mentioned in clause (vii) of paragraph 2 of this notification (the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed rupees four hundred lakhs in the preceding financial year) the following clearances shall not be taken into account, namely:-

(a) clearances of excisable goods without payment of duty-

(i) to a unit in a free trade zone; or

(ii) to a unit in a special economic zone; or

(iii) to a hundred percent. export-oriented undertaking; or

(iv) to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

(v) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue) No.108/95- Central Excise, dated the 28th August, 1995, vide number GSR. 602 (E), dated the 28th August, 1995.

(b) clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4;

(c) clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods;

^[9](d) omitted

(e) clearances, which are exempt from the whole of the excise duty leviable thereon under notifications No. 214/86-Central Excise, dated the 25th March, 1986 (G.S.R.547(E), dated the 25th March, 1986), or No. 83/94-Central Excise, dated the 11th April, 1994 (G.S.R. 375(E), dated the 11th April, 1994), or No. 84/94-Central Excise, dated the 11th April, 1994 (G.S.R. 376 (E), dated the 11th April, 1994).

In view of the above only value of those clearances indicated in the SSI Notification alone will be allowed to be excluded while calculating the aggregate value of ₹ 400 lakhs.

If your argument is to be accepted then you have to challenge para 3A of the notification as ultra vires of section 2 (d) of Central Excise Act, 1944. This can be done by filing a writ under Article 226 of the Constitution in a High Court. However it will take time to get a decision from the court.

[KASTURI SETHI]

Sir,

NIL tariff rate of duty is also rate of duty.

[CS SANJAY MALHOTRA]

Endorse the views of Sh. Kasturi ji that NIL Duty goods are Excisable. Legal Backing of Supreme Court in the case of Wallace Flour Mills Vs CCE (1989)44-ELT-598 = 1989 (9) TMI 106 - SUPREME COURT OF INDIA  Wallace Flour Mills Versus CCE may be referred to.

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

I am expressing my views not because you have endorsed my views twice on this issue. Virtually your interpretation of law is penetrating and hence par excellence on every issue. I save your views, especially, on complicated/controversial issues and place the same on desktop as ready reckoner for future consultancy.This is a fact and no exaggeration. What you have expressed and in a style you have expressed on the present issue is really matchless.

Actually, reply to cross query raised by Sh.Surinder Gupta, CA, Sir was under preparation by me but in the meanwhile I came across your reply to the query which was asked to me. Thus you saved my time and energy and I got "ready-to-eat" views.

Thanks a lot.

With regards.

KASTURI SETHI

[CS SANJAY MALHOTRA]

Dear Sh. Kasturi ji,

Highly Obliged. Your words value a lot for me...

Thanks and regards

Sanjay Malhotra

[KASTURI SETHI]

2005 (191) E.L.T. 1041 (Tri. - Bang.) - 2005 (9) TMI 142 - CESTAT, BANGALORE ARUN INDUSTRIES Versus COMMISSIONER OF CENTRAL EXCISE, HYDERABAD

Final Order Nos. 1535-1537/2005, dated 1-9-2005 in Appeal Nos. E/363-365/2005

SSI Exemption - Value of clearance - Computation of - Clearances of excisable goods in preceding year though nil rated/exempted to be included to calculate the limit of clearance of ₹ 300 lakhs for availing SSI exemption - Mere fact that goods attracted nil rate of duty does not mean that they are not excisable - Value of clearance of refined edible oil (excisable though exempt) being more than ₹ 7 crores, exemption not available - Notification No. 8/2003, dated 1-3-2003. [para 4]

[CS SANJAY MALHOTRA]

Dear Sh Kasturi Ji,

Appreciate the way you put the citation across, which leaves no room to debate further.

[Rama Krishana]

Dear All,

Hon'ble Supreme Court in case of WALLACE FLOUR MILLS COMPANY LTD. Versus COLLECTOR OF C. EX. - 1989 (9) TMI 106 - SUPREME COURT OF INDIA has confirmed the view taken by the tribunal and High Courts that

"the words `as being subject to a duty of excise' appearing in Section 2(d) of the Act are only descriptive of the goods and not to the actual levy. "Excisable goods", it was held, do not become non-excisable goods merely by the reason of the exemption given under a notification."

I have no doubt above the above position and no have no question about its validity.

But please appreciate, it is with reference to Exemption Notification only. This case no where examine the issue where the rate of duty has been prescribed as Nil or column of rate of duty is Empty itself in the Tariff. All the decision which has been referred or discussed involves the situation after exemption notification.

I do not find any decision which has examined the issue whether the goods are excisable goods or not when the tariff rate itself is Nil or Empty.

Therefore, in view of the foregoing discussions by the experts above, should we say that Provisions of Section 2(d) is required to be interpreted on the basis of interpretation of notification or interpretation to Section 2(d) should be on its own language.

I repeat my view that Exemption notification can not make Excisable Goods as non Excisable Goods and that's what Courts have decided.

But, whether goods are Excisable or not where tariff rate itself is Empty or Nil requires to be examined.

[KASTURI SETHI]

Sh.-Rama Krishana Ji,

Pl. refer to your queries and views detailed against query ID no.110151 dated 7.4.2016. I am discussing this issue in a sportsman spirit and you would not mind it.

Sir, you have used a word,"empty" again and again in your queries and views. It is not digestible.There is a world of difference between the words, "Empty" and "NIL rate of duty". Empty means containing nothing. NIL means ZERO. Can you say empty rate of duty? Not at all. Both the words cannot be used vice versa.

In Chapter 1, 6, 10, 12 of Central Excise Tariff Act, 1985, the column of rate of duty has been left empty. The word, "NIL" has also not been mentioned against the column meant for 'Rate of duty' in all these Chapters.

Are you not satisfied with the observations, 'NIL' rate of duty is also rate of duty ?

[KASTURI SETHI]

Dear Sir,

Pl. go through para no. 12 of the judgement of Supreme Court which is appended below:-

1996 (2) TMI 138 - 1996 (83) E.L.T. 3 (S.C.) IN THE SUPREME COURT OF INDIA  - CCE, HYDERABAD Vs. VAZIR SULTAN TOBACCO CO. LTD.

[Rama Krishana]

Yes Kasturi Ji,

With due regards,

As you have pointed out, In Chapter 1, 6, 10, 12 of Central Excise Tariff Act, 1985, the column of rate of duty has been left empty. The word, "NIL" has also not been mentioned against the column meant for 'Rate of duty' in all these Chapters., would you call these goods as excisable goods?.

If these goods are being called as excisable goods than please see the language of Section 2(d) of the CEA, 1944.

Our Legislature has defined the term excisable goods u/s 2(d) as

(d) "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;

They could have defined the term as:

(d) "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)

(as being subject to a duty of excise and includes salt; )

So the existence of the words "as being subject to a duty of excise and includes salt;" creates a point of contention in my mind.

Therefore, a decision by the Apex Court in the context of interpretation of an Exemption notification may not be applicable to the interpretation of term exciable goods u/s 2(d)

Therefore, with due respect and humble, I do not agree with the views expressed herein-before.

[CS SANJAY MALHOTRA]

Dear Mr Rama Krishan ji,

Experts in this form rendred their views with legal backing up or from the practical experience they have dealt with. Querist may or may not accept the submission placed herein.

Please read the Additional Note No 1(c) of Central Excised Tariff Act, reproduced as below:

Additional Notes : 1(c) :

(c) “tariff item” means a description of goods in the list of tariff provisions accompanying either eight-digit number and the rate of the duty of excise or eight- digit number with blank in the column of the rate of duty;

Empty Rate Goods as per you but defined as BLANK RATE in Central Excise Tariff are also EXCISABLE GOODS.

2007 (6) TMI 112 - CESTAT, AHMEDABAD - Other Citation: 2007 (218) E.L.T. 152 (Tri. - Ahmd.) GEETANJALI WOOLENS PVT. LTD. Versus COMMR. OF CUS. & C. EX., VADODARA-II

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

Thank you, Sir for enrichment of my knowledge. CESTAT Judgement of Ahmedabad based on the the judgement of the Apex Court is really useful and worth saving for future consultancy. Recalling and posting such judgement is the result of past experience and knowledge coupled with untiring hard work.Never seen such advice of high quality in my life, especially, it being free of cost.

[CS SANJAY MALHOTRA]

Dear Sh. Kasturi ji,

Am also like one of you to contribute at this platform to ensure Governance, as we have both have practically gone through the issues faced by Industry at the ground level. (rather you have your entire life in CENTRAL EXCISE DEPT possessing far knowledge as compared to us).

Not wanted to bring this CESTAT judgement earlier as you rightly mentioned that "NIL rate of Duty goods" are Excisable goods and besides this Apex Court citation has been brought in. But to make the querist issue addressed, all experts put in their best.

Thanks and regards

Sanjay Malhotra

[Rama Krishana]

Dear all Experts

Please accept my gratitude and thanks from the deep of my heart. Though I have different opinions but cannot reject your opinion also.

Your healthy discussions and participation deserve a hats off salute.

Thanks to all.

[KASTURI SETHI]

Sh.Rama Krishna Ji,

Sir, Let us not get rid of the issue until or unless we arrive at any concrete conclusion. I feel all the experts have "We Feeling" in this forum. I also consider you in the list of experts. If we leave the issue inconclusive, it is the defeat of all experts. I reply to your cross queries as under:-

By mere finding entry in First Schedule and Second Schedule of Central Excise Tariff Act, 1985, goods do not become excisable.Definition of 'manufacture' under Section 2 (f) has also undergone changes in the year 2003. So to some extent the judgements pertaining to the period prior to the amendments lose its sheen. Goods must be 'manufactured' and must be 'marketable'. Any product must, inter alia, conform to both parameters.

Further there is a gulf of difference between 'Blank' and 'NIL' entries against column meant for rate of duty. Still I am of the view that where the column of rate of duty has been left blank the goods are not excisable and where NIL rate of duty has been prescribed the goods are treated as excisable goods being subject to duty of excise. Why rate of duty has been mentioned NIL and why has been left blank need to be researched. Why do you not consider NIL rate of duty as rate of duty in terms of the judgement of Apex Court ? If we consider NIL rate of duty as rate of duty, then your condition of "subject to a duty of excise' stands fulfilled. You may pl. guide what is the difference between 'Leaving the column blank' and 'mentioning NIL rate of duty'.

Looking forward to your response.

With regards.

K.L.SETHI

 

[CS SANJAY MALHOTRA]

Dear Sh. Kasturi Sethi ji,

Excellently placed the topic for sharing thoughts as to "Why the Blank Rate has been placed"??????? This is the core strength of Experts who go to the deep root cause to understand the issue....

Also appreciate the way of bringing the debate by Mr. Rama Krishnan for knowldge enhancement.

Sir, one of my submission for Blank Rate of Duty is that I find majority of the goods are "PRODUCED" and not "MANUFACTURED" hence subject to Blank Rate at present as you correctly use the terminology Manufacture in your recent revert to query raised.

Will share other reasons too afterwards, but let others too do some brain storming.

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

Agreed Sir. By your reply dated 12.4.16 we are back to square one. Thus we cannot budge even an inch from the stand taken already on the issue.

Your reply i.e. difference between 'manufacture' and 'production' has taken me back to the year 1984 when I was asked this very question in my interview for promotion to the post of Inspector. And I was able to explain on the basis of cramming power at that time. Actually came to know the difference when I was posted in Range i.e. practical situation.

Awaiting eagerly the result of brain storming from Sh.Rama Krishana, Sir.