There was litigation on the point of taxability of ‘Tow’ which is an intermediate product in the manufacturing of Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) manufactured from plastic waste or scrap or plastic waste including waste polyethylene terephthalate (PET) bottles. The clarification on this issue was much required by manufacturer of Tow because they are not ready to pay excise duty on the same due to the fact that this was an ongoing product and at the same time, duty free deemed clearance of the said product is not allowed by the department. As a consequence, there are a number of cases pending based on this issue before various authorities. Thus, amendment was much required on this point.
Earlier there was dispute on duty liability and classification of Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) manufactured from plastic waste or scrap or plastic waste including waste polyethylene terephthalate (PET) bottles. The classification was decided by the government in the Finance Bill 2012, vide TRU Letter No. D.O.F. No. 334/3/2012-TRU dated 16.03.2012 wherein it was stated that chapter note has been inserted in Chapter 54 to provide that notwithstanding anything contained in Note 1, man-made fibre such as polyester staple fibre and polyester filament yarn manufactured from plastic and plastic waste including waste polyethylene terephthalate bottles shall be classified as textile material under Chapter 54 or Chapter 55, as the case may be. This amendment is being carried out with retrospective effect from 29.06.2010. Duty in respect of clearances already made is to be recovered from the manufacturers of these goods within one month of the date of enactment of the Finance Bill, 2012 failing which interest at the rate of 24% is payable.” Accordingly, it was specified that man made fibre such as polyster staple fibre and polyster filament yarn manufactured from plastic waste including waste PET bottles would be classifiable under chapter 55 with retrospective effect and would be leviable for duty from 29.06.2010. Not only this, central excise duty demands were also being raised for the goods cleared after 29.06.2010. However, simultaneously, the government also granted exemption to the said products vide notification no. 24/2012-CE dated 08.05.2012 wherein entry no. 172A was inserted wherein the said products were granted exemption from payment of excise duty. However, this notification was applicable with effect from 08.05.2012, and so the litigation arose for the period from 29.06.2010 to 07.05.2012. The reason for the dispute was that classification was confirmed from 29.06.2010 but no retrospective exemption was given to such manufacturer of PSF and PFY during the period prior to 07.05.2012.
But the dispute did not end here. The energetic field formation came up with another dispute of taxability of Intermediate product ‘Tow’ arising during the course of manufacture of such PSF/PFY. They said that since the final product is exempted then the duty is payable on intermediate product. The manufacturer pleaded that this is emerging during the ongoing process and cannot be taken out of the machine. Hence it is not marketable and not liable to excise duty following the number of Apex Court decisions on this issue.
Another dispute was regarding valuation of this intermediate product. The department was asking for valuation from Cost Accountant in form CAS-4 for valuation but the cost accountant was also finding it difficult to computing this cost as apportionment of direct expenses for such intermediate product was very difficult.
Circular by CBEC:
Recently, CBEC has also issued a circular that the matter as regards taxability of intermediate product “TOW” should be kept pending as the issue has been referred to them and they are considering the same. This circular raised the hopes of the manufacturers that the issue will come to an end.
The new dynamic Finance Minister has clarified these issues in his budget speech. The issue relating to manufacturing of PSF and PFY has been exempted from payment of Excise Duty retrospectively w.e.f. 29.06.2010 to 07.05.2012. An intermediate product Tow arising from the manufacturing of PSF and PFY is also being exempted retrospectively w.e.f. 29.06.2010 to 10.07.2014 so as to provide relief to the manufacturers of such PSF/PFY.
But with effect from 11.07.2014, the PSF and PFY will be taxable @2% without Cenvat credit facility by virtue of notification 1/2011-C.E dated 1.3.2011 as amended by Notification number 8/2014-C.E dated July 11, 2014 [New Serial No. 70A]. The manufacturers also have an option to pay duty @6% with Cenvat facility as per serial number 172A of notification number 12/2012-CE dated 17.03.2012 as amended by Notification no. 12/2014 dt 11.07.2014.
Thus, this amendment has clarified the issues relating to taxability of PSF and PFY and intermediate product “tow” manufactured from Plastic scrap or waste or plastic waste including waste polyethylene terephthalate (PET) bottles. These PSF and PFY are made exempted retrospectively from levy of excise duty for the period from 29.06.2010 to 07.05.2012. Thus, all demands or pending cases will be set aside or terminated which would provide a great relief to the manufacturers.
On the other hand, ‘Tow’, an intermediate product, is also made exempted retrospectively from 29.06.2010 to 10.07.2014. Thus, this amendment has released assessee or manufacturer of ‘Tow’ from the burden of Excise Duty.
With effect from 11.07.2014, the product “PSF” and “PFY” is brought under the regime of Excise. This will be taxable @2% (without Cenvat) or @6% (With Cenvat). Since all scrap of PET bottles are coming duty free, hence the manufacturer procuring such material will opt for 2% duty. But other set of manufacturers who are importing these input, they will take the credit and opt for 6% duty because there is CVD on imported input of which credit is admissible.
However, if the product is being sold to end user, who is unable to avail cenvat credit, he will compel the manufacturers to pay 2% duty. There is another difficulty also as the manufacturer who are manufacturing other products in the same factory will find it very difficult to maintain separate records for input services used commonly in the manufacture of all the products. They may forgoe the credit attributable to input services so as to avoid the obligations of Rule 6 of the Cenvat Credit Rules, 2004.
However, with the retrospective exemption from levy of excise duty, the litigation has by and large come to an end. The manufacturers of these products have seen very tough time while fighting with the department. A lot of representation and correspondences with the department are result of the amendment. But it can be said now that:-“Ache din aa gaye hai.”
An article by:- CA. Pradeep Jain, CA Neetu Sukhwani & Ankit Palgauta