Circular No. 07/2001-Cus.
6th February, 2001.

F.NO. 305/93/2000-FTT

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

Sub: Method of Calculation of Duty Leviable in Terms of Central Excise Notification No.2/95-CE, Dated 4-1-95 on Goods Cleared into Domestic Tariff Area by EOU/EPZ/ETP/STP Units under Para 9.9(b) of the Exim Policy – Reg.

I am directed to invite your attention to Board’s Circular F.No.512/91/93-CUS.VI, dated 18th May 1994 regarding the duty payable on excisable goods cleared from 100% Export Oriented Units/ Units in the Export Processing Zone into the Domestic Tariff Area (DTA). A copy of the Circular is enclosed for ready reference. Subsequently, another Circular was issued vide F.No.345/12/99-TRU, dated 24-9-1999 (copy enclosed), suggesting a method for computing excise duty payable on the DTA clearances of EOU/EPZ units. As the instructions contained in the two Circulars referred to above were not in harmony with each other, a doubt has been raised as to the correct method of calculation of duty for such DTA clearances of EOUs/EPZ units.

2.The matter has been carefully examined by the Board. As per the proviso to section 3(1) of the Central Excise Act, 1944, excisable goods produced or manufactured by EOUs/ EPZ units and brought to any other place in India, are leviable to duties of excise in an amount equal to the aggregate of the duties of Customs which would be leviable under section 12 of the Customs Act, 1962 or any other law for the time being in force on like goods produced or manufactured outside India, if imported into India. However, under notification No. 2/95-CE, dated 4-1-1995, the goods manufactured or produced by EOUs/EPZ units and cleared into DTA in accordance with certain specified paragraphs of the Exim Policy are charged to excise duty at a concessional rate which is equal to 50% of each of the duties of customs. Such being the case, each of the duty leviable on import of like goods should be worked out first and thereafter, 50% of the amount of each duty so calculated, taken together should be collected as excise duty on such goods produced by EOUs/EPZ units when cleared into the DTA.

3. In view of the position explained above, it has been decided that in terms of Board’s Circular F. No. 345/12/99-TRU dated 24-9-1999 with effect from 16-9-1999 (i.e from the date of issue of notification No. 38/99-CE dated 16-9-99), excise duty on goods manufactured or produced by EOUs/EPZ/EHTP/STP units and cleared into DTA in accordance with notification No. 2/95-CE, dated 4-1-1995 would be collected in the same manner as given in Illustrations showing calculation of aggregate of Customs duties leviable. However, for purpose of clarification, the detailed calculation is shown in the Annexure to this Circular.

4. Board’s Circular F.No.512/91/93-CUS.VI, dated 18-5-94 stands rescinded. The short levy on or after 16-9-1999 calculated on the basis of method of calculation shown in the Annexure, may be recovered from EOUs/EPZ units and action in this regard may be completed by 15-2-2001. A compliance report in the matter along with the revenue involved may be forwarded to the Board by 20-2-2001.

5.Difficulties, if any, faced in the implementation of the above instructions may be brought to the notice of the Board at an early date.

Kindly acknowledge receipt of this Circular.

C.P. Goyal
Sr. Technical Officer (FTT)

Annexure

Assuming the product X has the following value and chargeable to following duties:-

(i) Value of goods under section 14 of Customs Act, 1962=Rs. 100/-

(ii) Basic Customs Duty= 35%

(iii) Surcharge= 10%

(iv) Additional Duty= 16%

(v) Special Additional Duty= 4%

The calculation of duty leviable on the goods produced or manufactured by EOUs/EPZ/STP/EHTP units and cleared into DTA as per specified paragraphs of the Exim Policy would be as follows:-

Method of calculation of duty

On assessable value of Rs. 100/-, the goods would be leviable to,-

Basic Customs Duty @ 35% = Rs. 35.0/-
Surcharge @ 10% Online GST Certification Course by TaxGuru & MSME- Click here to Join

= Rs. 3.5/-

Total Basic duty + Surcharge = Rs. 35.0 + Rs. 3.5/-

= Rs. 38.5/-

Value for the purpose of calculation of Additional Duty under section 3 of CTA, 1975

= Rs. 100/- + Rs. 38.5/-

= Rs. 138.5/-

Additional Duty of Customs = 16% of Rs. 138.5/-
= Rs. 22.160/-
Value for the purpose of calculation of Special Additional Duty under section 3A Of CTA, 1975 = Rs. 100/- +Rs. 38.5/-+ Rs. 22.160/-
= Rs. 160.660/-
Special Additional Duty = 4% of 160.660/-

= Rs. 6.426/-

Total duty payable = Rs. 35.0+ 3.5 + 22.160+ 6.426/-

= Rs. 67.086/-

Duty required to be paid = 50% of 67.086 = Rs. 33.543/-

  (Read with notification No. 2/95-CE, dated 4-1-1995 as amended)

The amount of duty so calculated above to be payable by the EOUs/EPZ/STP/EHTP units would be subject to the condition that such duty shall not be less than the duty of excise leviable on the like goods produced or manufactured by units in DTA.

F.NO.512/91/93-CUS VI DATED 18th MAY 1994

Sub: Regarding clearance of excisable goods from 100% Export Oriented Units/Units in the Export Processing Zones.

Certain doubts have been expressed regarding the matter of calculation of the amount of excise duty payable on clearances of excisable goods manufactured by a 100% EOU/EPZ unit into Domestic Tariff Area in terms of Notification No.97/91-Central Excise dated 7-10-91 (since rescinded and Notification No.101/93-Central Excise, dated 27-12-93.

In terms of section 3 of the Central Excise and Salt Act, 1944, excisable goods produced or manufactured in a 100% EOU/EPZ unit are liable to such excise duty in an amount equal to the aggregate of duties of customs which would be leviable under Section 12 of the Customs Act, 1962, on like goods imported into India. For calculating the amount of said excise duty, the value of such excisable goods is to be determined in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975. Such like goods when imported into India are chargeable to the basic duty of customs as also the additional duties or auxiliary duties as the case may be. For the purposes of calculating the additional duty under Section 3 of the Customs Tariff Act, 1975, the value of the goods is the sum total of –

(i) The value of the goods calculated in terms of Section 14 of the Customs Act.
(ii) The basic duty of Customs and
(iii) The auxiliary duty under the relevant Finance Act.

For such computation, the effective quantum of basic/auxiliary customs duty is added. In terms of the exemption Notification No.97/91-Central Excise or Notification No.97/91-Central Excise or Notification No.101/93-Central Excise, excisable goods produced or manufactured in a 100% EOU/EPZ unit are exempted from so much of the duty of excise as is in excess of the amount calculated at the rate of 50% of the duties of customs which would be leviable under Section 12 of the Customs Act read with any notification for the time-being in force on the like goods imported into India.

A question has been raised whether for quantifying the value for the purpose of additional duty, the basic duty and the auxiliary duty would be 50% of the respective amounts in terms of the aforesaid notifications or the respective amounts by themselves.

The matter has been examined by the Board and it has been observed that the two Central Excise Notifications No.97/91- as also No.101/93 clearly stipulate that 50% of each of the duties of customs should be levied for DTA clearances. The basic duty is collected in terms of the schedule to the Customs Tariff Act, Additional Duty is collected in terms of Section 3 of the Customs Tariff Act, and the auxiliary duty in terms of the respective Finance Act. In this situation, the wording “each” used in the

Notification No.97/91-CE and No.101/93-CE is significant for the purposes of calculating/collecting the various duties of customs duty (CV duty). In short, the effective or the collectable basic customs duty/auxiliary duty is first to be determined in terms of the above Notifications. The collectable basic duty/auxiliary duty in terms of the said exemption notifications would be the 50% of such basic duties/auxiliary duties normally leviable. For computing the value for the purposes of determining the additional customs duty under Section 3 of the Customs Tariff Act, 1975, the effective chargeable basic duty/auxiliary duty is to be added to the value of the goods imported in terms of Section 14 of the Customs Act, 1962. In this type of cases (or DTA clearances) since the effective basic customs duty or the auxiliary duty is 50% of the normal effective duties, it is only the concessional 50% basic duty or auxiliary duty that would form the add up component for the purpose of determining the value for levy of additional customs duty. Hence, while computing the value in terms of notifications 97/91-CE or 101/93-CE should be taken into account. The method of calculation has been clarified in the example given in the Annexure. It is felt by the Board that the Method – A is the correct method of calculating the amount of excise duty in respect of clearance in the DTA.

 ANNEXURE

Manner of calculation of Excise Duty on Clearance effected by EOU/EPZ units in the Domestic Tariff Area

Assuming value of goods under Section 14 of Customs Act, 1962 =

Rs. 1000

Basic Customs Duty = 100% ad valorem
Auxiliary duty = 50% ad valorem
Additional duty = 20% ad valorem

METHOD ‘A’

Basic Customs Duty = 50% of Rs.1000
(read with notification 97/91-CE) = Rs. 500
Auxiliary duty = 25% of Rs. 1000
(read with notification 97/91-CE) = Rs. 250
Total basic + Auxiliary = Rs. 750
Value for the purposes of calculation of Addl. = Rs.1000+Rs.750
Duty under Section 3 of CTA, 1975 = Rs. 1750
Additional duty (read with Noft. 97/91-CE) = 10% of Rs.1750 = Rs.175
Duty required to be paid = 750+175 = Rs. 925

METHOD ‘B’

Basic Customs Duty @100% = Rs.1000
Auxiliary duty @50% = Rs.500
Rs.1500
Value for the purpose of calculation of = Rs. 1000 + Rs.1500
Additional duty under Section 3 of CTA 75 = Rs.2500
Additional duty @ 20% = 20% of Rs.2500
= Rs.500
Total Duty = Rs. 1500+500=Rs.2000
Duty required to be paid = 50% of Rs.2000
(read with Notfn.No. 97/91-CE) Rs.1000

Method A is the correct method to quantify the amount of duty required to be paid by EOU/EPZ units for clearance into Domestic Tariff Area.

F.No.345/12/99-TRU

Government of India

Ministry of Finance

Department of Revenue
Tax Research Unit

 24th September, 1999.

 Sub:- Notification 38/99-Central Excise, dated 16.9.99 – Supreme Court Decision in the case of M/s. Hyderabad Industries Ltd. regarding Changing section for levy of additional duty of customs – reg.

  I am directed to refer to the notification 38/99-Central Excise dated 16.9.99 which amends notification Nos.2/95-CE, dated 4.1.95, 20/97-CE, dated 11.4.97 and 13/98-CE, dated 2.6.98, so as to substitute the references in the said notifications to “the duties of customs leviable under section 12 of the Customs Act, 1962” with “the duties of customs leviable under the Customs Act, 1962 or under any other law for the time being in force”.

2.        The goods cleared by Export Oriented Undertakings (EOUs) and Free Trade Zones in the Domestic Tariff Area (DTA), are treated at par with ‘imported’ goods, and the excise duty leviable on such clearances, in terms of the proviso to section 3(1) of the Central Excise Act shall be an amount equal to the aggregate of all the customs duties which would be leviable under section 12 of the Customs Act, 1962 on like goods produced or manufactured, outside India, if imported into India. Under notification Nos.2/95-CE, dated 4-1-95, 20/97-CE, dated 11-4-97 and 13/98-CE, dated 2-6-98, concessional excise duties equal to 50%, 50% and 30% of the aggregate of such customs duties respectively, have been prescribed in respect of the DTA clearances of the goods specified under the respective notifications.

3.        In the case of M/s Hyderabad Industries Ltd. [1999(108) ELT 321], the Hon’ble Supreme Court has held that the charging section for the additional duty of customs, leviable under section 3(1) of the Customs Tariff Act, 1975, is not section 12 of the Customs Act. In view of the said judgment, duties of customs such as the said additional duty, cannot be considered to be levied under the said section 12 of the Customs Act. Since the notifications above referred to the duties of customs leivable under section 12 of the Customs Act, 1962 for computation of the excise duty payable on the DTA clearances, such other duties of customs other than the basic customs duty, will not be includible in such computation, consequent to the said Supreme Court judgment.

4.        Notification No.38/99-CE, dated 16-9-99, has been issued to suitably amend each of the notification Nos. 2/95-CE, 20/97-CE, and 13/98-CE. As a result, duty on DTA clearances by EOUs, etc. will be computed in the same manner as was being done before but with one change.

5.        The change is that the excise duty payable under the said notifications is subject to the statutory ceiling prescribed in terms of the proviso to sub-section (1) of section 3 of the central excise act, 1944. This aspect is illustrated below with two examples

   Illustration 1 :- Suppose product X is liable for only a tariff rate of basic customs duty of 25% but under an exemption is liable for basic customs duty of 15% (surcharge 1.5%), and additional duty of customs of 16%, then the computation of excise duty payable on the DTA clearances of X under notification No.2/95-CE will be as follows:

Maximum excise duty payable in terms of  proviso to section 3(1) = 15%
Aggregate of customs duties leviable under the Customs Act or under any other law in force read with relevant notifications (i.e., equal to the duty in terms of notification No. 2/95-CE leviable prior to the said judgment) = 0.5*[15+1.5+1.165*16] = 17.57%
Excise duty payable under the amended Notification No.2/95-CE = Min [15%, 17.57%] = 15%

Illustration 2: Suppose effective rate of basic customs duty on the product X above is 25% (surcharge 2.5%), then the computation will be as follows:

Maximum excise duty payable in terms of proviso to section 3(1) = 25%
Aggregate of customs duties leviable under the Customs Act or under any other law in force (equal to the duty in terms of notification No.2/95-CE leviable prior to the said judgment) = 0.5*[25+2.5+1.275*16] = 23.95%
Excise duty payable under the amended Notification No.2/95-CE = Min [25%, 23.95%] = 23.95%

 6.        The above changes are effective from 16th September, 1999.

P.R. Chandrasekharan
Dir. (TRU)

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