The Central Government vide Notification No. 37/2007-C.E.(N.T.) dated 17.09.2007, amended the Notification 19/2004-C.E.(N.T.) dated 06.09.2004 by inserting clause 2(h), whereby it is provided that when a manufacturer is taking Area Based exemption under various notifications, he shall not be eligible for rebate of export goods. The clause reads as,

“G.S.R.  (E).- In exercise of the powers conferred by rule 18 of the Central Excise Rules, 2002, the  Central Government hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue, No. 19/2004-CE (N.T) dated the 6th September, 2004 published in the Gazette of India, Part II, Section 3, Sub-section (i) Extraordinary, No. 570 (E), dated the 6th September, 2004.

In the said notification, in paragraph 2, after clause (g), the following clause, shall be inserted, namely:-

(h) that in case of export of goods which are manufactured by a manufacturer availing the notifications of the Government of India in the Ministry of Finance (Department of Revenue) No. 32/99- Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated the 8th July, 1999] or No. 33/99- Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated the 8th July, 1999] or No. 39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565(E), dated the 31st July, 2001] or notification of the Government of India in the erstwhile Ministry of Finance and Company Affairs (Department of Revenue) No. 56/2002-Central Excise, dated the 14th November, 2002 [G.S.R. 764(E), dated 14th November, 2002] or No. 57/2002-Central Excise, dated the 14th November, 2002 [ GSR 765(E), dated the 14th November, 2002] or notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 56/2003-Central Excise, dated the 25th June, 2003 [G.S.R. 513 (E), dated the 25th June, 2003] or 71/2003-Central Excise, dated the 9th September, 2003 [G.S.R.717 (E), dated the 9th September, 2003] or No. 20/2007- Central Excise, dated the 25th April, 2007 [G.S.R. 307(E), dated the 25th April, 2007], the rebate shall not be admissible under this notification.

This author do understand that this is a position of law, and after this notification the exporter from that area will not get the benefits of rebate of duty on export goods. However, the author is of the view that this law is not only inconsistent and unjustified, it is ridiculous. The fundamental problem in our taxation set up is that “Tax Research Unit” of the Board is basically a “Revenue Research Unit”. Such revenue research unit fails to understand that the purpose of taxation is much wider than mere collection of revenue. In their effort to collect more revenue, they introduce in logically inconsistent measures leading to more confusion. Such confusions are the worst thing that can happen to a developing economy like India. Can we ever imagine a “Tax Research Unit”, not manned exclusively by revenue officers of Government- after all wisdom is not a monopoly of the Government, or at least it had not been notified as such till date.

Well, let us examine the result of this amendment:

1. This amendment is asking the merchant exporters not to procure goods for such areas for export as they will not get the rebate of duty paid on export goods. Off course the duty paid in cash will be refunded to the manufacturer, but such refund will only cover the higher cost of production in these inaccessible reasons.

2. The other things this amendment is saying to the exporters that don’t export the goods produced in these regions as duty paid through cenvat is rebatable all over India, it is not so in inaccessible regions. The exporter will not get the rebate, and the manufacturer will not get refund of duty paid through Cenvat (As per provision of various exemption scheme.)

3. The manufacturer based in such regions should not export as there is dis-incentive to export from these regions.

4. Double benefit, like Cenvat to buyer and refund to manufacturer, is perfectly right in case of domestic sales, double benefit must not be there to the exporter in form of rebate.

5. Yes, if the exporter is smart enough he can procure inputs for export from these regions, take cenvat on those inputs- use those inputs for manufacture of export goods and take the benefit of rebate. Thus if the exporter can add one more steps in manufacturing of export goods outside these regions, he shall be entitled to both cenvat on inputs and rebate of duty on export goods. Off course the manufacturer of inputs in exempted regions will get refund of duty paid on inputs supplied to the exporter in other areas.

6. If the exporter takes the circuitous route as in 5, he can also get the refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules.

Thus the amendment is doing nothing but adding inconsistency in law, which will result in more litigation.

The fundamental logic of this amendment is that if such rebate is allowed, the manufacturer exporter will get double benefit. But this is what the area based exemption notifications has given to the manufacturers in form of both Cenvat Credit and refund of duty paid. It appears to be a contradictory measure to take away from the manufacturer vide this amendment, what other notifications are giving to the manufacturer.

Purpose of Exemption Notifications:

Tax is an integral part of the cost of production of goods. Whenever, a taxation measure is taken, the industry has to take into account the financial burden of the tax and adjust accordingly. Otherwise, the industry will not survive in present competitive environment.

North-eastern states, Jammu & Kashmir  are places where it is difficult to set up industry. Capital will not go the places where problems like extremism exist. If you don’t give a benefit, commensurate to the higher cost of production of goods in these reasons, and reward for higher amount of risk taken, no person will go to set up an industry in these regions. The cash refund of duty paid by the manufacturers in these areas are one such reward. Off course the government is not obliged to give such rewards, but if the taxation policy has to look beyond revenue collection as economic measure for balanced regional development and advancement of backward regions, such rewards has to be given. And these exemptions had worked. Such area based exemptions has resulted in tremendous growth of industrial activity in these backward areas.

But it is not clear as why the government is penalizing the exporter for the benefit given to the manufacturer for valid reasons.

Only Tax (read Revenue) Research Unit can tell.

(Views expressed are personal views of the author.)

Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on custom.excise@gmail.com , Web: www.rajeshkumar.co.in

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