The Finance Minister has introduced the Finance Bill, 2011 in Lok Sabha on 28th February, 2011. Changes in Central excise law and rates of duty have been proposed through the Finance Bill, 2011 (clauses clauses 59 to 70 for Central Excise). In order to prescribe effective rates of duty and to carry out changes in the Rules made under the respective Acts, the following notifications are being issued:
|CENTRAL EXCISE||Notification Nos.||Date|
|Tariff||No.1/2011-CE to No.18/2011-CE||1st March, 2011|
|Non-Tariff||No.3/20 1 1-CE (NT) to No.7/20 1 1-CE (NT)||1st March, 2011|
Unless otherwise stated, all changes in rates of duty take effect from the midnight of 28th February/1st March, 2011. A declaration has been made under the Provisional Collection of Taxes Act, 1931 in respect of clauses 57(a)(i), 57 (b) and 70(a)(i) of the Finance Bill, 2011 so that changes proposed therein take effect from the midnight of 28th February/1st March, 2011. The remaining legislative changes would come into effect only upon the enactment of the Finance Bill, 2010. Retrospective amendments in the provisions of law or notifications issued under the respective Acts shall have the force of law only upon the enactment of the Finance Bill, 2011 but with effect from the date indicated in the relevant clause or Schedule. These dates may be carefully noted.
2. The important changes in respect of Central excise duty are discussed below.
I. CENTRAL EXCISE
3 Rate structure for goods, other than petroleum:
3.1 The standard rate of Central Excise duty for non-POL products has been maintained at
10%. The merit rate of excise duty (CENVAT) for non-petroleum goods has been increased
from 4% to 5%. The increased rate would apply to all such goods that hitherto attracted the rate of 4%.
3.2 The rate structure applicable to Portland cement falling under heading no.252329 has been revised. Cement manufactured by units other than mini-cement plants and cleared in a packaged form was chargeable to Central Excise duty either at specific rates or ad valorem rates depending on the retail sale price per 50 kg bag. The ad valorem rate was applicable to the retail sale price. Although the price slabs are being retained, the rates of duty are being converted to mixed rates i.e. ad valorem + specific rates along with some reduction. For the purpose of the ad valorem component, the value would no longer be the retail sale price but the transaction value determined under section 4 of the Central Excise Act, 1944. Similarly, rates of duty applicable to cement manufactured by mini-cement plants have been revised from specific rates to either ad valorem or ad valorem+ specific rates with some reduction. The rate of duty on bulk cement (i.e. other than packaged form), whether manufactured in a mini-cement plant or not, is being unified at 10% ad valorem. The details of these changes are as under:
|S.No.||Description of goods||Earlier rate||Revised rate|
|1.||Packaged cement manufactured in a mini-cement plant –|
|(i) Of retail sale price not exceeding Rs. 190 per 50 kg bag or of per tonne RSP not exceeding Rs.3800||Rs. 185 PMT||10% ad valorem|
|(ii) Of retail sale price not exceeding Rs.190 per 50 kg bag or of per tonne RSP not exceeding Rs.3800||Rs.315 PMT||10% ad valorem +
|2.||Packaged cement manufactured in a plant other than a mini-cement plant –|
|(i) Of retail sale price not exceeding Rs.190 per 50 kg bag or of per tonne RSP not exceeding Rs.3800||Rs.290 PMT||10% ad valorem +
|(ii) Of retail sale price not exceeding Rs. 190 per 50 kg bag or of per tonne RSP not exceeding Rs.3800||10% of retail sale
|10% ad valorem +
Rs. 160 PMT
3.3 Excise duty on cement clinker has been revised from Rs.375 per metric tonne to “10%+
Rs.200 per metric tonne”.
Ready-made garments and made-up articles:
3.4 Excise duty at the rate of 10% shall now apply to ready-made garments and made-up articles of textiles falling under Chapters 61, 62 and 63 (heading nos.63.01 to 63.08) of the Central Excise Tariff except those falling under heading nos.63.09 and 63.10 when they bear or are sold under a brand name. Hitherto, ready-made garments and made-up articles were exempt from Central Excise duty on the condition that no credit of duty on inputs is taken by the manufacturer in terms of notification no.30/2004-CE dated 9th July, 2004. If credit were taken, the applicable rate was 4% for goods of cotton, not containing any other textile material and 10% for others under notification no.29/2004-CE also dated 9th July, 2004. These notifications are being amended so that they apply only to those goods of Chapters 61, 62 and 63 not bearing a brand name or not sold under a brand name. For such goods, therefore, the optional duty regime would continue. In the case of ready-made garments and made-up articles bearing a brand name or sold under a brand name, no such option would be available and a duty of 10% would be payable regardless of the composition of the item/article.
3.5 Note 12 of Chapter 61 and Note 11 of Chapter 62 already prescribe that certain processes such as affixing a brand name on a product, labeling or re-labeling of containers etc. shall be processes amounting to manufacture. A similar note (Note 5) is being added to Chapter 63. As for the valuation of these goods, tariff value has already been fixed at the rate of 60% of the retail sale price in terms of notification No.20/2001-CE (NT) dated 30th April, 2004. This provision is being extended to goods of Chapter 63 as well. It may be noted that SSI exemption is being extended to the goods attracting this levy. This is being implemented through a suitable amendment in item (xxvi) of the Annexure to notification No.8/2003-CE dated 1.3.2003. Although this should take care of small manufacturers, it may be made abundantly clear to the field formations that the levy does not apply to retail tailoring establishments that stitch garments in a customized manner to the size and style specifications of individual customers, whether out of fabric purchased by the customer from the same establishment or fabric supplied by the customer.
3.6 It is the practice in the garment and made up industry for brand owners to have goods manufactured from several job-workers. The brand owners may or may not, themselves, possess any manufacturing facility. Central Excise Rules are being amended to incorporate sub-rule (1A) in rule 4 to prescribe that in such a situation the liability to pay duty and comply with Central Excise procedure shall be on the person on whose behalf the goods are manufactured by job-workers. For this purpose, he would be required to register his private store-room or warehouse in which inputs are received for distribution to job-workers and finished goods are received from the job-workers. He would also be required to comply with all the other provisions of Central Excise law. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty. Alternatively, the merchant manufacturer may authorize the job-worker to obtain registration and comply with all formalities of Central Excise including payment of duty. Cenvat Credit Rules, 2004 are being amended to enable merchant manufacturers to avail of credit of duty paid on inputs, input services and capital goods.
3.7 Motor vehicles of headings 87.02 and 87.03 which are registered for use solely as ambulance after clearance are eligible to a concessional rate of 10% by way of a refund mechanism (S.No.34 (i) of notification no.6/2006-CE). For factory-built ambulances i.e. vehicles duly fitted with all fitments, furniture and accessories necessary for an ambulance, this concessional rate of 10% is being prescribed without any condition so that it may be claimed at the time of their clearance from the factory.
3.8 A similar refund-based concession was hitherto available to motor vehicles of heading 87.03 with a capacity of 7 persons including the driver which are registered for use solely as taxis after clearance(S.No.34 (ii) of notification no.6/2006-CE). Two changes are being carried out in this exemption: (i) the condition regarding capacity of the vehicle is being modified so that the concession is available to vehicles with capacity upto 13 persons including the driver; (ii) instead of a concessional rate of 10% ad valorem, the manufacturer of such vehicles would be entitled to a concessional rate equivalent to 80% of the excise duty paid on such vehicle at the time of clearance. Thus, if a vehicle attracts a normal duty of 10%, the manufacturer would be entitled to a refund of the amount representing 2% i.e. one-fifth of the total duty if the vehicle is subsequently registered as a taxi.
3.9 Concessional duty of 10% is being prescribed for hydrogen vehicles based on fuel cell technology. Similarly, a concessional rate of Central Excise duty of 5% has been extended to specified parts of hybrid vehicles and plug-in kits (and their parts) for conversion of normal fuel vehicles into hybrid vehicles.
3.10 Excise duty on serially numbered gold bars, other than tola bars, when manufactured from the ore concentrate stage is being reduced from Rs.280 per 10 grams to Rs.200 per 10 grams. This concessional rate is also being extended when such bars are manufactured starting from the stage of “gold dore bars”. Gold and silver arise in the course of manufacture of unwrought copper from copper ore or concentrate through the smelting process. The rates of excise duty on such gold and silver are also being rationalized at Rs.300 per 10 grams and Rs.1500 per kg respectively.
Goods for Mega-Power Projects:
3.11 Full exemption from Central Excise duty is available to goods supplied to ultra-mega power projects subject to the fulfillment of certain conditions – one of them being that the goods should be eligible for exemption from customs duties. Trade had represented that difficulties were being experienced in availing of the benefit of this exemption owing to this condition. The description of goods in the relevant entry in notification no.6!2006-CE has been amended to align it with the description under heading no.98.01 (project imports) and the condition regarding eligibility for customs exemption has been deleted. In addition, the exemption has been extended to power cables used within the generation facility of such a project. It has also been clarified by an explanation that the ash disposal system including ash dyke, coal transportation systems and water intake are integral parts of such a project.
3.12 Full exemption from Central Excise duty has also been extended to specified goods supplied to expansion projects of existing mega power projects, subject to certain conditions.
4. Withdrawal of exemptions/ concessions:
4.1 A number of exemptions from Central Excise duty (about 130 exemption entries) are being withdrawn. These include some cases where the rate of duty is Nil by tariff. A nominal duty of 1% ad valorem is being imposed on these items with the condition that no credit of the duty paid on input and input services is taken. For ease of reference, this rate is being prescribed through a common notification no. 1/201 1-CE dated 1st March, 2011. The statutory Tariff rate for those items that hitherto attracted a Nil rate (by tariff) has been fixed at 5% ad valorem. Bill entries contained in the Tenth Schedule to the Finance Bill, 2011 may be referred to for this purpose. For the remaining items in whose case the statutory/tariff rate is not Nil, a general effective rate of 5% is being prescribed (without any condition) through notification no.
2/2011-CE dated 1st March, 2011. This would enable those manufacturers who wish to avail of Cenvat credit to pay a concessional duty of 5%.
4.2 In the case of jewellery of gold, silver or other precious metals as well as articles of these metals falling under heading no. 7114, the levy would apply only to goods either bearing a brand name or sold under a brand name. Full exemption from excise duty is being retained for unbranded products of this class.
4.3 The following amendments have been made in the Cenvat Credit Rules, 2004 for the implementation of the 1% scheme:
(a) The definition of “exempted goods” has been amended to include goods in respect of which the benefit of notification no.1/2011-CE is availed. This would imply that the credit attributable to such goods would have to be reversed when common inputs and input services are used for both these goods and otherwise dutiable goods.
(b) Credit of duty paid on inputs or input services would not be available to a manufacturer of these goods. Credit of the duty paid on items that are being subjected to the levy of 1% would not be available to a manufacturer or service provider who buys them. (c) It is also being prescribed in the Cenvat Credit Rules that the manufacturer of these goods
cannot discharge the duty liability on them by utilizing Cenvat credit otherwise available in his books of accounts. For these provisions, amendments in the Cenvat Credit Rules, 2004 contained in Notification No. 3/2011-CE (NT) dated 1st March, 2011 may be referred to.
4.4 Many of the manufacturers of these goods may be fresh registrants under Central Excise law. It may kindly be ensured that they are provided the necessary facilitation and guidance in securing registration and complying with Central Excise formalities and that coercive measures are not used in the immediate aftermath of the Budget for the implementation of the levy.
4.5 Full exemption was hitherto available to paper manufactured from non-conventional raw materials for the first clearances not exceeding 3500 per metric tonne per annum made from a unit. This exemption is being withdrawn.
4.6 Full exemption from excise duty available to automatic looms and projectile looms is being withdrawn. Full exemption on micro-processors, other than motherboards; floppy disc drive; hard disc drive; CD-ROM drive; DVD drives/ writers; flash memory and combo drives meant for fitment inside a laptop/CPU is also being withdrawn. All these goods would be chargeable to a concessional rate of 5%.
5. Relief Measures:
5.1 Full exemption from excise duty has been provided in the following cases:
5.2 Concessional duty of 1% is being provided for the following:
5.3 Excise duty is being reduced from 10% to 5% on:
6. Important Legislative Amendments:
6.1 The provisions of sections 1 1A relating to the recovery of duty not levied, short levied, not paid, short paid or erroneously refunded have been redrafted with a view to improve the sequence in which provisions occur and simplify their language. Each sub-section consists of one sentence and conveys a single point. As far as possible, active voice has been used and provisos have been eliminated. In terms of content, the following important amendments have been proposed in this section:
(i) A separate category has been carved out from cases involving extended period of limitation (fraud, collusion, willful mis-statement etc.) wherein a lower mandatory penalty of 50% of the duty (rather than 100% of the duty) would apply. These would cover cases where it is noticed during an audit, investigation or verification that duty has not been levied, short levied, not paid or short paid or erroneously refunded but the transactions to which such duty relates are entered in the specified records.
(ii) While a provision has been made for issuance of show cause notice invoking the extended period for recovery of duty with interest under section 1 1AC and penalty equivalent to 50% of the duty, it has also been specifically provided that even in cases where show cause notice has been issued involving extended period of limitation (fraud, collusion, willful mis-statement etc.) with penalty equal to the duty, the penalty can be remitted to 50% if the Central Excise officer is of the opinion that the details of the transactions in respect of which the demand notice has been issued have been duly recorded by the person charged with duty in the specified records.
(iii) The provisions of the existing sub-section (1A) of section 11 have been omitted. The facility of compounding the penalty amount has been confined only to the new category and if the person chargeable with duty (for an extended period) pays the duty in full or part along with interest before the issuance of a show cause notice, the penalty shall stand reduced to 1% per month but not exceeding 25% of the duty. However if the duty alongwith interest is paid within thirty days of the issuance of adjudication order, the penalty would be 25% of the duty.
6.2 The provisions of sections 1 1AA and 1 1AB have been merged into a revised section
1 1AA. Under the proposed provision, interest would be payable on any duty not levied, short-levied, not paid, short paid or erroneously refunded from the first date of the month succeeding the month in which the duty ought to have been paid under the Act or from the date of erroneous refund. The provisions of the existing section 1 1AA are proposed to be omitted.
6.3 Pending enactment of the Finance Bill, 2011, the rates of interest are being revised with effect from the 1st of April, 2011 to a uniform rate of 18 per cent per annum under the existing provisions of sections 1 1AA and 1 1AB.
6.4 Section 1 1E is being inserted in the Central Excise Act to create a first charge on the property of a defaulter for recovery of Central Excise dues subject to the provisions of the Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This implies that after the dues, if any, owing under these provisions, dues under the Central Excise Act shall have a first charge.
6.5 The provisions of section 12 of the Central Excise Act enable the Central Govt. to borrow the machinery provisions of the Customs Act with suitable modifications and alterations in respect of duties imposed by section 3. These are being amended to include a reference to duties imposed under section 3A as well so that the same provisions can be applied in respect of duties collected on the basis of compounded levy. The amended provision shall acquire legal force upon the enactment of the Finance Bill, 2011 with retrospective effect from 10.05.2008.
6.6 It has been decided to empower the Joint Commissioner/Additional Commissioner of Central Excise (instead of Assistant Commissioner) to carry out the search of any premises or to authorize a central excise officer to do so. For this purpose, section 12F is being inserted in the Central Excise Act.
6.7 As you are aware, the Board has already issued instructions prescribing monetary limits below which appeals, revision application or references need not be filed. However, such instances are not meant to be cited as precedents in cases involving similar issues or questions. A new section 35R is being inserted to empower the Board to issue such instructions. This section shall also acquire legal force when the Finance Bill, 2011 is enacted although with effect from 20.10.2010.
6.8 The Standards of Weights and Measures Act, 1976 is being repealed with effect from 01.03 2011 and replaced by „The Legal Metrology Act, 2009‟. Section 4A of the Central Exc se Act is being amended to incorporate a reference to the new Act.
6.9 The First Schedule to the Central Excise Tariff Act (contained in the Tenth Schedule to the Finance Bill, 2011 read with clause 70(a)(i)) is being amended with immediate effect to, inter-alia, carry out the following changes –
6.10 The First Schedule to the Central Excise Tariff Act (CETA) is also being amended to incorporate the latest editorial changes in the Harmonized System of Nomenclature (HSN). These changes will come into effect from 01.01.2012.
6.11 Parts, components and assemblies of vehicles falling under chapter 87 excluding vehicles of headings 8712, 8713, 8715 and 8716 were notified under section 4A of the Central Excise Act with effect from 27.02.20 10. Subsequently, parts, components and assemblies of certain vehicles falling under chapter 84 were also notified under these provisions with effect from 29.04.20 10. However, these goods were not simultaneously included in the Third Schedule to the CETA. These are now being included in the Third Schedule retrospectively w.e.f. 27.02.20 10 and 29.04.2010 respectively.
6.12 Amendments are being made in the Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957 to remove sugar and textile and textile products from its purview. This would enable the State Governments to levy VAT on these items.
6.13 According to Note 5 the repacking of perfumes from bulk packs to retail packs, labeling
or re-labeling of containers is a process amounting to manufacture. In the case of traditional perfumes, commonly known as „Attar‟, this repacking is done at the point of retail sale to the customer in the retail shops. As a consequence, retail shops are required to obtain registration and comply with all the formalities of Central Excise law. The trade has represented that this poses a heavy compliance burden. Full exemption from excise duty has been provided to such goods when removed from retail shops after they are subjected to any of the process specified in the said Note provided that the manufacturer pays the duty on such goods when cleared in bulk from the factory on value representing the retail sale price. If the retail sale price is not required to be or not printed, then the value shall be the value at which such goods are sold in retail at a time nearest to the time of clearance from the factory. The notification also provides that the manufacturer shall observe the procedure specified by the jurisdictional Commissioner. (Notification No.18/2011-CE dated the 1st March, 2011 refers.)
7. Amendments in Cenvat Credit Rules, 2004
7.1 Several amendments have been carried out in the provisions of the Cenvat Credit Rules (CCR), 2004. The basic thrust of these changes is to broad base and simplify definitions to reduce disputes and to achieve a more realistic attribution when common inputs or input services are used for the manufacture of both dutiable and exempt goods. A detailed discussion on the revised provisions is contained in the d.o. letter of Joint Secretary (TRU-II) which is also being issued today. From the point of view of Central Excise, the salient features of these changes are as under:
(a) The definition of „input‟ contained in rule 2(k) has been revised. The requirement that goods should be used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not has been removed. Henceforth, all goods used in the factory by the manufacturer of the final product, except those specified in the negative list and goods having no relationship whatsoever with the manufacture of final product, would qualify for treatment as inputs. In addition, any goods including accessories cleared alongwith the final product and goods used for providing free warranty have also been included in the definition of inputs. Similarly, goods used for generation of electricity or steam for captive use also constitute inputs. As for exclusions, any goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of capital goods have been excluded. Another feature of the new definition is that goods used primarily for personal use or consumption of any employee including food articles etc. have been expressly excluded.
(b) The definition of input services has also been rationalized to impart clarity and to achieve congruence between goods and services so that the services related to any goods excluded from the definition of „inputs‟ are also excluded from the definition of input services. To give an example, goods used for construction have been excluded from inputs while construction services, works contract service, and other specified services in so far as they are used for construction have been kept out of the purview of input services.
(c) In the case of capital goods, there is no material change in the definition. Credit of duty paid on capital goods used outside the factory for generation of electricity for captive use within the factory has been permitted.
(d) The process of obtaining goods and material mainly melting scrap and re-rollable scrap of steel, by breaking up of ships, boats and other floating structures is deemed to be a process of manufacture in terms of section note 9 of Section XV of the Central Excise Tariff. In the breaking of ships, a number of used serviceable articles such as pumps, air-conditioners, furniture, kitchen equipment, wooden panels etc. are also generated. These are generally sold as second hand goods by ship breaking units but no excise duty is payable as they do not emerge from a manufacturing process. At the same time, ship breaking units are allowed to avail full credit of additional duty of customs paid on the ship when it is imported for breaking. It has been reported by the field formations that this anomaly is resulting in misuse of the Cenvat credit scheme. Rule 3 of the CCR has been amended to prescribe that Cenvat credit shall not be allowed in excess of 85% of the additional duty of customs paid on ships, boats etc. imported for breaking.
(e) Rule 5B is being amended to require a manufacturer or service provider to pay an amount equivalent to the CENVAT credit taken in respect of inputs or capital goods even where the value of such inputs or capital goods is written off partially before being put to use. Currently, this is required only when the value is written off fully.