The PHD Chamber of Commerce and industries-Centtral Excise And Customs CENTRAL EXCISE – POLICY Object
Reduce the burden on Manufacturing Sector
Excise Duty Rate to Converge at 10%
Goods and Services Tax At the time when the thrust is on simplification of the tax laws for better compliance and easier administration, it would be pertinent to enact the Goods and Service Tax legislation in order to levy the goods and service tax at least at the level of the Central Government. This would also signal the commitment of the Central Government to implement Goods and Service Tax at national level comprising of CENVAT, State Vat and Service Tax. The Government should announce the road map for implementation of GST. 1. Amendments to Exemption Notification for the reason of Change in Excise Tariff w.e.f. 01/01/2007 on account of Harmonisation with HSN Presently, the Notification No. 6/2006-CE dated 1-3-2006 exempts cellular phones and its parts, customized software, recorded storage devices such as VCD, CD, DVD and specified CD- ROM falling under specified Tariff heading from payment of excise duty. Similarly, audio cassettes are exempted under NT. No. 10/2006-CE dated 1-3-2006.Similarly, audio cassettes are exempted under NT. No. 10/2006-CE dated 1-3-2006. However, due to the proposed change in tariff heading w.e.f. Ist January 2007 these products would fall under different tariff heading of excise tariff and the duty exemption benefit will no longer be available unless the said notification are amended to incorporate the changes in excise Tariff. Suggestion A Tariff Notification (effective from Ist Jan. 2007) may be issued before 01.12.06 amending existing notifications by incorporating the revised classification in respect of said goods. 2. Exemption of Education Cess where no Excise Duty is Payable W.e.f. 10-9-2004, the Government levied education cess at the rate of 2% on the amount of excise payable on manufactured goods. The government has provided location-based exemption from payment of excise in states such as Jammu and Kashmir. In these states no excise is payable by the unit located in the specified areas. For claiming the exemption, the unit has to first pay excise duty on goods and subsequently claim refund of duty paid from the PLA/cash account. The authorities are refusing the refund claim of education cess on the ground that the excise exemption notification does specifically exempts payment of education cess on such goods. Suggestion An amendment in the notifications granting exemption notification is sought to clarify that the exemption from excise includes exemption from education cess also. 3. Clarification on Non-Applicability of Education Cess on Automobiles Cess W.e.f. 10-9-2004, the Government levied education cess at the rate of 2% on the amount of excise payable on manufactured goods. As per Section 93 of the Finance Act ( No. 2) Act , 2004, Education Cess is calculated on aggregate of all duties of excise which are levied and collected by the Central under provision of Central Excise Act, 1944 or under any other law for the time being in force. Whether the said education cess is leviable on automobile cess levied vide Notification No.S.O 932 (E) dated 28-12-1983 issued under Section 9 Industries Development and Regulation) Act, 1951 (IDR Act). This Cess has been imposed by Central Government through Commerce Ministry mainly for promotion of Scientific & Industrial Research and matters related to the automobile sector. However, education cess is levied on the excise duty by the Finance Ministry. Consequently, no education cess should be payable on the aforesaid automobile cess. Suggestion Suitable clarification is required on the issue that since the automobile cess is levied by Commerce ministry, the education cess is not leviable on such automobile cess. 4. Increase in Services covered under Rule 6(5) of Cenvat Credit Rules Rule 6(5) of CENVAT Credit Rules, 2004 specifies 16 services for which CENAVT credit on input services can be availed by manufacturer even if such services are partly used in the provision of exempted goods. Finance Act, 2006 has inserted 15 new taxable categories of services. However Rule 6(5) of CENVAT Credit Rules, 2004 has not been accordingly expanded amended by incorporating some relevant services to Rule 6(5) services. Suggestion Some of the appropriate taxable services introduced with effect from 01.05.06, should be included in the list of Rule 6(5). 5. Definition of Input Services as per Section 2 (l) of the CENVAT Credit Rules, 2004 Rule 2(l) of the CENVAT Credit Rules defines the term input services for the purpose of availment of credit. The inclusive part of the definition uses the words "activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto place of removal". Whether only the illustrative list given will be considered as input services or all services used in relation to business would be treated as input services. Suggestion Definition of "input services" should be made clearer so that the credit can be claimed in accordance with law. 6. Continuation of Stay order beyond Six Months W.e.f. 11-5-2002, the provision of Section 35C(2A) was amended to provide that if the appeal is not disposed of within 180 days from the date of stay order granted by the Tribunal, then stay granted in the appeal shall expire after expiry of 180 days from the date of such order. The provision has causing lot of hardship to the assessees for the reasons beyond their control. It is common practice in the CESTAT that the matter is not taken up for hearing for a period more than 180 days from the date of stay order due to huge pendency. The assessee has to unnecessary file extension application for extension of stay beyond the period of 180 days which causes extra expenditure. Suggestion The original provision should be restored with condition that the CESTAT on its own or on the request of the Department may modify the stay order, if the assessee involves in any dilatory tactics in respect of hearing of appeal. 7. National Calamity Contingency Duty NCCD was introduced vide Section 136 of the Finance Act, 2001 on pan masala, chewing tobacco & cigarettes. Subsequently, it was imposed on PFY, motor cars, MUVs, two wheelers and Crude oil. NCCD is an additional burden of tax on the industry which adds to the cost of manufacture Suggestion NCCD should be removed on motor cars, MUVs, two wheelers and crude oil. Though NCCD was supposed to lapse by 31st March, 2005, it is still continuing. Therefore, no extension should be made to this provision. 8. 100 per cent CENVAT credit on Capital Goods in year of Purchase As per Rule 4(2) of CENVAT Credit Rules, 2004 only 50 percent CENVAT credit is allowed on Capital goods in year of purchase balance 50 percent in subsequent years This results in cash flow problems. Moreover, elaborate accounts need to be kept to keep track of the credit availed. Suggestion CENVAT Credit Rules maybe amended to allow 100 percent CENVAT credit on Capital goods in year of purchase 9. Exemption from Excise Duty for Captive Consumption by the other unit of the same Manufacturer As per Rule 8 of CE Valuation Rules, 2000, when excisable goods are not sold by the assessee but are used for captive consumption by the other unit of same manufacturer, the value will be 110 percent of the cost of production. The duty paid by the first unit is available as CENVAT credit to the second unit. Hence, the whole exercise is revenue neutral. Suggestion Central Excise provisions may be amended to provide exemption from Excise Duty to units which manufacture goods for captive consumption in various other units of the same manufacturer and duty is paid on the final product manufactured by such other unit. 10. Time limit for return of Capital Goods from Job Worker's Premises As per Rule 4(5)(a) of CENVAT Credit Rules, 2004, a manufacturer who sends Capital goods to the job worker's premises for further processing, etc. has to ensure return the same back to his unit within 180 days. However, no such provision exists for the return of jigs, fixtures, moulds & dies which are sent to job worker's premises for further processing, etc. On most occasions the job-worker utilizes capital goods continuously like jigs, fixtures, moulds & dies. Hence, the provision for return of the same should be made similar. Suggestion The provision for return of Capital goods from the job-worker's premises within 180 days as per Rule 4(5) (a) should be removed. However, a usage certificate maybe obtained instead from the job worker for submission to the Department on a yearly basis to keep a track of the capital goods lying in the job worker's premises for a long time. 11. CENVAT on Imports through Courier As per Rule 9 (d) of the CENVAT Credit Rules, 2004, CENVAT credit can be claimed on the basis of a certificate issued by the Appraiser of Customs in respect of goods imported through a Foreign Post Office. The same facility for availing CENVAT Credit is not available if the goods are imported through courier. Suggestion CENVAT Credit may be allowed if goods are imported through courier 12. Exemption from Excise Duty on Equipment supplied to R&D Industries CVD is exempted on imported equipment supplied to R&D industries for DSIR funded projects under Notification No. 50/96 –Cus dated 23-07-1996. Though CVD is exempted, Excise Duty is not exempted on equipment supplied to R&D industries as Notification number 10/97-CE dated 01.03.97 covers supplies to only Public Funded and Non-Commercial research institutions. Suggestion Notification number 10/97-CE dated 01.03.97 and Notification No. 50/96-CUS may be aligned so as to rationalize the tax structure and promote development of indigenous industries in the field of R&D equipment. 13. Depreciation of Capital Goods on Removal When Capital goods on which CENVAT Credit has been taken are removed from the factory, full CENVAT Credit has to be reversed as per Rule Sub Rule (5) of Rule 3 of CENVAT credit Rules, 2004. No provision for depreciation of Capital goods has been made at the time of reversal of credit in the new rules. Suggestion Capital goods on which full CENVAT credit has been taken, are removed from the factory then depreciation should be taken into consideration as per the method stated in CBEC Circular No. F No.495/16/93-CUSVI, dated 26th May, 1993. The necessary amendments in Cenvat Rules may be considered. 14. Possible Changes in Valuation The S D Majumdar Committee report on possible changes on valuation was put up on public domain for the information of the industry. The committee has proposed various amendments in Central Excise Act but in essence wants to recommend taxation of all goods produced on job work basis on the related party’s route rather than adopting the Section 4 a methodology. The report proposes a departure from the existing methodology followed by the Government of India to deal with all goods which are essentially proposed on contract packing. In short a departure from Section 4A would therefore add to the existing vows to all litigation as MRP based transaction was precise and litigation free. Suggestion It is requested that the S D Majumdar Committee report which may be considered by the Central Government for implementation in Finance Bill 2007-08 be considered from the Section 4A perspective rather than creating a new basis in valuation by making amendments as proposed in the report. 15. Central Excise Litigation Invoking Larger Period Despite plethora of Judgments of the Supreme Court and relevant High Courts, time and again we the Industry is burdened with the Department of Central Excise reopening of an issue after the final assessments are completed for a period of 5 years alleging that suppression was resorted to. The Supreme Court in two following land mark judgements:- Pushpam Pharmaceuticals Company V/S Collector of C. Ex., Bombay reported in 1995 (78) ELT 401 (SC) Collector of Central Excise V/S Chemphar Drugs & Liniments reported in 1989 (40) ELT 276 (SC) Clearly lays down propositions on what constitute the suppression of facts. Despite the Apex Court opinions and rulings the number of litigations is mounting in Courts and Tribunals on this issue. The following issues will have to be understood in case a break through is needed on the subject
In all the above areas, we find that the Department does not have a case on more than 90% of the disputes pending with the Apex Tribunal and the Supreme Court. Recently, in a reported decision 2006-TIOL-117-SC-CX-LB in case of Commissioner Of Central Excise, Aurangabad Vs Balakrishna Industries it was found that that the Department went to the extent of not challenging Tribunal Order on merits, but challenged the penalty alone which was consequent to invoking the larger period. It is indeed a mockery of the system that the Department chooses to dispute all matters on larger period but hardly succeeds on all four corners of its case repeatedly at the Supreme Court, High Court because of basic flaws in the approach to invoking the proviso to Section 11A. Suggestion Considering the above, it is requested that adequate protection mechanism may be inserted under the proviso Sub Section (1) to Section 11A wherein the code will specify on grounds on which the larger period can be invoked thereby closing the scope for unwanted litigation. 16. Credit in respect of Units Operating under Rule 16B Rule 16B as inserted vide Notification no.1/2004 dated 8.1.2004 provides for a manufacturer to manufacture excisable goods which are in the nature of semi finished goods and dispatch the same to other premises belonging to him and bring back such goods to his factory or other registered premises and allow them for despatch for home consumption or exports from these relevant premises or factories. It is pertinent however that Cenvat Credit Rules 2004 or the earlier Credit Rules do not permit availment of Cenvat Credit on inputs or on intermediate goods in a place outside factory. To illustrate: In case of a multi stage manufacturing Product A is produced in semi stage at Stage A and is shifted to some other factory belonging to a same manufacturer or other registered premises, from where the goods after certain processing in Stage B are cleared on payment of terminal duty. In case the manufacturer were to use Rule 16B for this purpose and requests the relevant authority for no duty payment at Stage A where the goods are produced and take the entire duty payment when Stage B is completed, the same may be allowed, but the Cenvat Credit Rules in Stage B do not permit availment of credit pertaining to stage A manufacturing. Suggestion It is suggested that appropriate amendments are brought on to the Cenvat Credit Rules to allow credit in receipt of goods removed under rule 16 B also at the units in which terminal duty is paid subject to suitable safeguards for Revenue. 17. Rule 7 of the Cenvat Credit Rules The Cenvat Credit Rules as it stands today prohibits distribution of Cenvat Credit for units which do production on Job work basis. It is relevant to understand that a scenario of MRP based duty where the Government already earns maximum revenue realization of excise duty basis Section 4A enactments. It is Industry unfriendly to continue with restriction under Rule 7 that promotes credit distribution only to its own units of manufacture. Suggestion An adequate amendment should be made in Rule 7 of the Central Excise Rules that will enhance credit capacity of large scale manufacture and also at the same time outsourcing of production to smaller units. 18. Credit of Input Services The existing Cenvat credit rules as regards input services are essentially covered by the definition under Rule 2 of the Cenvat Credit Rules 2004 and this does not cover outward transportation beyond the place of removal, which is the depot. In an era of duty under MRP basis and the abatement which are essentially towards tax such as sales tax, dealer’s margin, retailer margin and VAT tax alone, it is improper not to allow credit on secondary transportation which happens beyond the place of removal i.e. from the depot to the point of sale in trade. Integration of Service Tax provisions with Central Excise would be incomplete without all credits entering the cost stream. Under the reverse charge mechanism also, the cost of the Service tax towards secondary transportation are borne by the manufacturer / companies and under these circumstances, it is highly cost ineffective to deny this credit. Suggestion It is suggested that appropriate amendments is made to Clause L of the Rule 2 of the Cenvat Credit Rules 2004.
19. Pre-Authentication of Invoices Pre-authentication of invoices are necessary for any class of assessee. Volume of invoices are very high of the big assessees. Suggestion Pre-authentication should be waved in case of assessee paying revenue more than Rs 5 crore in a year. 20. CENVAT Credit in case of sending Raw Material directly to the Job Worker's Premises CENVAT may be taken by the principal after receipt of processed goods from job worker. As per Rule 4(5)(a) of CENVAT Credit Rules, 2004 material can be sent to job worker after taking the CENVAT Credit. Suggestion CENVAT should be admissible to the principal immediately on receipt of the raw material at job worker's premises. 21. Export to Nepal Verification and sealing of the goods meant for Nepal export by Excise Officers. Leads to delay in export shipments and high transaction cost to the assessee. Suggestion Self verification and sealing facility should be provided to the assessee like export to the country other than Nepal. 22. Warehousing of Export Goods under Rule 20 Stations are specified for warehousing by Board. But Noida which is a big industry town have not been specified. There is a considerable growth in export from Noida and Greater Noida. Suggestion Noida should be specified for warehousing of export goods. 23. Rule 21 Central Excise Rules- Remission of duty By circular No.800/33/04 CX dtd 1.10.04 the CBEC has laid down in para 3 that the credit of excise duty paid on inputs used in the manufacture of the finished goods on which duty has been remitted due to damage or restriction etc, is not admissible and the dues with interest should be recovered. This order is on the face of it is incorrect as the case on which the CBEC has relied rule so only when relief for duty was given by the insurance company. Even Commissioners do not seem to accept para 3 of the circular as seen from Trade notice No.36/2005 dtd 15.4.05 (2005(183) ELT (T21) of the CCE, Ahmedabad III regarding applications for remission of duty. Para 6 of the Trade notice seeks information whether relief of duty has been considered in the insurance claim. Even the order of the Tribunal in the case CBEC has relied, namely of Mafatlal Industries Ltd –Vs-CCE (2003 (154) ELT 543 (Tri.Mum) is in-correct. It makes the remission under rule 21 of the Central Excise rules subject to an extraneous Consideration, of whether the insurance has compensated for the loss of duty. This aspect had also been dealt with by the Tribunal in the case of Sarada Ply Wood Industries Ltd –Vs- Coll. of C.Ex. (1987(32) ELT 116 (Tri). There is no provision in Rule 21 for any extraneous consideration. The remission earned would have to be allowed if the conditions therein are satisfied, namely the goods were lost or destroyed by natural causes or by unavoidable accident and are unfit for consumption or marketing at any time before removal. Any conditions the Assistant Commissioner would have to be only in relation to the purpose of the Rule. The cenvat credit rules also do not provide for reversing the cenvat credit on inputs which have gone in to production correctly. The provision under cenvat rule is only in respect of goods which are exempted. Suggestion It is therefore suggested that CBEC circular No.800/33/04 CX dtd 1.10.04 be withdrawn. 24. Minimum fee for Appeal to Tribunal In section 35B provision has been made that the Tribunal may in its discretion refuse to admit an appeal in respect of an order relating to certain cases of goods exported or cenvat credit if the amount does not exceed Rs. 50,000/-. When this section is read with the amendment made in the section w.e.f 1.11.04 that minimum fee for an appeal to the Tribunal is Rs. 1000/- it is clear that the burden will be very harsh at least in so far as a small sector is concerned. Unless an appeal is filed, the Tribunal cannot apply its discretion. Suggestion It is therefore suggested that while keeping the minimum fee at Rs. 200/- some staggering of the fee may be made by introducing one more stage at Rs. 500/- in cases of above Rs. 2 Lakhs. 25. Difficulty in availing CENVAT on Sale in Transit Transaction Section 3(b) of the Central Sales Tax Act provides for the circumstances under which a sale or purchase of goods is said to take place in the course of interstate trade or commerce. According to the Section, a sale or purchase of goods shall be deemed to take place in the course of interstate trade or commerce if the sale or purchase is effected by a transfer of documents of title to the goods during their movement from one state to another. Thus, the sale is effected by a transfer of documents of title to goods during their movement from one State to another. Where the property in the goods has passed the movement has commenced, the sale will not evidently fall within Section 3 (b) or when the property in the goods passes after the movement from one State to another, such sale will not also fall within the section. Accordingly, the section provides for endorsement in the documents during the journey or movement of goods and not earlier to that. Under Central Excise, where a Registered person places an order on a manufacturer for supply and delivery of goods directly to customer/assessee and the goods are also accordingly transported/despatched from the manufacturers’ premises to the users’ premises without being brought to the Registered persons’ premises, the manufacturer has to issue an invoice under Central Excise Rules, 2002. The prescribed invoice under Central Excise should also contain (in addition to specified details), the consignee’s name and address for the purpose of availing CENVAT credit. Thus, before the goods move from one State to another or one place to another, the consignee’s name (second buyer) also should be incorporated in the documents of title of goods to make him eligible to avail CENVAT. If this condition is satisfied in order to avail the CENVAT credit, then the transaction will not qualify as an E1 sale under the Central Sales Tax Act. A close comparison of mandatory requirement under the Central Sales Tax Act, 1956 and Central Excise Act, 1944/Rules, 2002 will lead to contradiction between these two Acts as far as sale in transit is concerned. Both the Acts are Central legislations and as such there should not be any anomaly or contradiction on the same issue. When sale in transit is recognised or accepted under Central Excise Act , 1944/Rules, 2002, the same should have been allowed under Central Sales Tax Act also as per Central Excise requirement. Suggestion At present, the industry faces hardship in cases of sale in transit under Central Sales Tax Act as documents of title to goods are to be endorsed during the course of transit whereas the Central Excise Act requires such endorsement for such sale in transit to be done before commencement of such movement. Hence, provisions of Section 3(b) of Sales Tax Act may suitably be amended in accordance with the provisions of Central Excise Act. 26. CENVAT credit on endorsed Bill of Entry At present CENVAT credit is allowed on Bill of Entry against import. Sometimes, there are traders who are not registered under Central Excise, who import material and forward the goods to the Registered manufacturers for the purpose of conversion of the material on job work basis. As the non-Registered unit/trader cannot issue CENVATABLE invoice against such import, the situation forces such trader to get registered under Central Excise so as to issue CENVATABLE invoice. Consequently, such registration is only a procedural compliance under Central Excise and does not serve any other purpose except for issuing CENVATABLE invoice. This has caused immense hardship to genuine small traders. Suggestion The Rule should be amended to provide that the Bill of Entry duly endorsed by such non-Registered trader should also be recognised for the purpose of availing CENVAT credit when the material is sent to the Registered manufacturer for the purpose of conversion of material on job work basis. 27. Exclusion of Freight, Insurance, handling charges from assessable value Excise duty is leviable on the manufacture of excisable goods. In other words, excise duty is levied on the assessable value, which is inclusive of cost of production and manufacturer’s margin. Under section 4 of Central Excise Act, 1944 when excisable goods are sold at the factory gate, the price paid or payable for such goods is considered as transaction value for levying excise duty. Any amount recovered as reimbursement of actual freight charges or insurance is also excluded in connection with such sale. In other words, the element of freight, insurance are not added to the total assessable value for the purpose of levying excise duty on the goods sold directly from the factory gate to various consumers or customers. In fact when goods are sold through branches or consignment agents, the concept of levying excise duty on similar excisable goods are different. As a result, freight, insurance and handling charges upto /at the depot are included to the assessable value (transaction value) and excise duty is to be paid on the composite value when such goods are sold through branches or consignment agents. This increases the cost of sale. This concept appears to be illogical and leads to discrimination with regard to the valuation of goods sold through branches and consignment agent specifically when there is a price revision. Further, excise duty is to be levied only on the cost of the goods manufactured and post removal event should not be linked or considered for the purpose of levying excise duty. It will increase the cost of such excisable goods sold through branches/consignment agents. Suggestion This anomaly should be removed by amending Section 4 of the Act read with relevant valuation rules by excluding the elements of freight, insurance and handling charges from the assessable value of the goods sold through branches/ consignment agents. 28. Abolition of Excise Audit (EA 2000) Ministry of Finance has introduced Excise Audit 2000 applying new concepts for audit based on the Canadian method. According to the new excise audit concepts, the audit team designated by the Commissioner of Audit, visits the manufacturer’s premises, studies the procedure, method, system followed by the manufacturers based on which the audit is conducted. Due to this new concept the Central Excise officials are functioning according to their own whims and fancies insisting on submission of irrelevant records, particulars etc. Though all records such as production, despatch, cenvat record, invoices, account books, files, Excise returns, sales tax return, income tax return, cost audit report etc. are made available to them they still exercise unauthorised powers and insist on submission of irrelevant records which in no way is connected with conducting the audit. Suggestion Therefore, the government should define their role and the area to which they should confine themselves by inserting suitable provisions in the Central Excise Rules. 29. Online E-filing of weekly Information by major Duty paying Units Recently Central Excise Dept. has issued Trade Notice for E-filing of weekly and monthly return on line. All the major duty paying units are required to opt for online E-file and submit product wise i.e. CETSH-wise weekly information i.e. production, clearance, value duty etc. that too within 3 days after end of the preceding week. Trade and Industry is of firm opinion that E-filing, furnishing product wise information i.e. CETSH wise weekly information i.e. production, clearance, value, duty etc. is consuming a lot of time and there is a cost involved in collecting information every week. Suggestion When the assessees are submitting monthly return regularly, filing weekly information will not serve any purpose and has no duty implications. Many times the assessees are compelled to engage a separate department for this purpose at a cost. Against this backdrop, the weekly E-filing system should be done away. The local formations should not introduce any non-statutory reports to be filed by the assessee. In case field formations feel that such information is an absolute necessity, the Rules may be amended to prescribe such returns. 30. Liability for 100% EOU Under EPCG scheme, our customer obtains an import licence for importing machinery from overseas. The licence is invalidated for purchase of machinery from India against which the customer gives Bank Guarantee and bond to the licensing authority. Under the above scheme an assessee is supposed to pay Central Excise duty for which the refund is filed with the Office of the Jt. Director General of Foreign Trade and it takes several months to get the refund. It is suggested that the liability, if any for Central Excise duty should be on the purchaser as is in the case of "ANNEXURE-I" for Cold Storage and CT-3 for 100% Export Oriented Unit where the liability is with the buyer for misuse of any machinery or for not installing the same. Suggestion The liability of excise duty should be with the purchaser and not with the manufacturer in the case of cold storages and 100% export oriented units. CENTRAL EXCISE – SPECIFIC COMMODITIES 1. Excise Duty on Barley Malt Barley Malt is an agro processed item (heading 1102.00) which has been subjected to an excessive duty of 16%. It was given full duty exemption until 1996 but duty was imposed at 8% during 1997-98 and later hiked to 16% for no justifiable reason. It is also discriminatory because many other processed food items have either been fully exempt or subjected to a low duty as a socio economic measure. Barley is grown by a large farming community especially in the northern States of Punjab, Haryana, Rajasthan and UP. It has strong rural backward linkages as to sustain the farmers and connected employment. The duty pushes up the prices that it has adversely affected farmer’s interest in terms of reduced barley consumption and demand and declining acreage of cultivation. Suggestion The excise duty on barley malt should be reduced from 16% to 8%.
2. Excise Duty structure for Food Processing Industry The goods of Chapter 15, 16, 19 and 20 which are fully exempted from payment of CENVAT have not been included in the Notification No.10/96 which grants exemption to intermediate goods manufactured and consumed within the factory for manufacture of exempted goods. Similarly, intermediates like Mixes and doughs (Tariff item 1901 20 00) for the preparation of bakers’ wares of Chapter Heading 1905 are subject to CENVAT of 16% when breads and other similar bakers’ ware are exempt and biscuits and cakes are subject to CENVAT of 8%. Suggestion It is recommended that scope of Notification for 10/96 be extended to all the products of food processing industry, which are fully exempted from CENVAT. Similarly, intermediate products (like doughs) of exempted goods when manufactured in another factory or premises may be exempted from excise duty. 3. Excise Duty on Research and Development (R&D) Centres Drug R & D activity is being increasingly outsourced to India and Indian drug companies are also setting up in house R & D centres outside the factory premises. The Department of Scientific and Industrial Research, Ministry of Science & Technology grants recognition certificates to such R&D enters. The R & D centres carry out experiments and research at laboratory scale, which may result in manufacture of excisable goods at laboratory scale (in grams or kilograms). Such small quantities are not marketable as such but are supplied along with research reports for evaluation. At times small quantities are manufactured for supplied as standard sample for evaluation purpose or for further research. Notification No. 167/71 dated 11/09/1971 as amended, grants exemption to goods, produced or manufactured in a research institutions during the course of carrying out experiments or research, from payment of excise duty. However, the Excise Department is of the view such exemption does not extended to R & D centres set up for commercial purposes and directs such units to get registered under Central Excise Act and maintain all excise records and pay excise duty on samples based on cost construction method. The exercise is revenue neutral as such centres are highly capital intensive and CENVAT credit on capital good, input services and maintenance spares is sufficient to cover the duty liability on the samples produced. Suggestion It is suggested that Notification No. 167/71 dated 11/09/1971 may be amended to extend its scope to research centres recognized by Department of Scientific and Industrial Research, Ministry of Science & Technology. 4. Motorized Sewing Machines Due to an anomaly household sewing machines with in-built motors have come under the ambit of excise duty/CVD @ 16% in the year 2002. The sewing machines have always been exempted from the levy of excise duty. Vide notification number 06/2002-CE dated 1.3.02 exempting products eligible from excise levy, the exemption was given to sewing machines other than those with in-built motors under sl. No. 201 (Central Excise Tariff classification 8452.19 under chapter 84). Sewing machines are essentially meant for the weaker sections of society and provide a means for their livelihood. It also helps widows and destitutes to live with dignity. That is why the Government has always exempted sewing machines from levy of excise. The above anomaly goes against the spirit of exemption. With change in technology and automation, sewing machines are not available with in-built motors that provide a great advantage to the end users in terms of efficiency and productivity and consumers prefer these sewing machines to those run by hand or feet. It will also encourage small individuals/tailor to stand against the competition posed by the readymade garment manufacturers who have access of more mechanised machines. However, the levy of excise at 16% increases the cost which discourages the poor end users from opting for the required change. Suggestion This is suggested that to review the levy of excise/CVD on this product and will be obliged if you could extend the exemption granted to household sewing machines to include those with in-built motors as well. 5. Cigarette Industry India is the 3rd. largest producer of tobacco in the world. Tobacco is an extremely important commercial crop that provides livelihood to 36 million people, 75% of whom are in the agricultural sector. It generates over Rs. 9000 crore in excise duties and Rs. 1400 crore in foreign exchange earnings. An equitable and non-discriminatory tax policy for all tobacco products, which maximizes revenue to the Exchequer, even in a shrinking basket of overall tobacco consumption should be followed. This can only be achieved by reducing the large tax differential between cigarettes and other tobacco products, thereby encouraging transition to higher revenue yielding forms of tobacco consumption, i.e. cigarettes. A very large proportion of the non-cigarette tobacco industry, by virtue of being fragmented and in the unorganized sector, escapes taxation. Bringing this sector into the tax net can substantially enhance revenue from tobacco. Although cigarettes represent only 15% of total tobacco consumption, they account for as much as 85% of the revenue generated from tobacco. In fact, on a per Kg. basis, cigarettes are taxed 35 times higher than other tobacco products. The extremely high incidence of tax on cigarettes has made cigarette consumption price elastic, unlike tobacco consumption. This is forcing cigarette consumers to shift to cheaper and revenue inefficient forms of tobacco consumption like biris, chewing tobacco, gutka, etc. As a result, not only are excise collections being sub-optimised, but also, overall tobacco consumption is increasing. If this trend is reversed, every percentage point increase in cigarettes’ share of total tobacco consumption can increase revenue by Rs. 500 crore. High tax rates also result in the increased availability of smuggled cigarettes, because they offer an attractive tax arbitrage opportunity. Moderate increases in excise duty rates on cigarettes, over the last 5 years, has resulted in substantial revenue growth. Revenue collections have increased from Rs. 5342 crore in 2001/02 to an estimated Rs. 8100 crore in 2006/07 – a considerable growth of over 50%. In comparison, a steep 15% increase in 2001/02 actually led to a decline in revenue collections. The Specific Duty Structure has proved to be extremely beneficial and superior to the earlier ad-valorem structure, particularly with regard to revenue collections and valuation disputes. Furthermore, the current duty structure, which provides for different duty rates for different lengths of cigarettes, should be retained. Given the large income disparities in India, the different length slabs provide consumers with price alternatives, depending upon their propensity to spend. For example, a King size cigarette, because of higher tax rates, is priced much higher than a regular sized filter cigarette or a plain cigarette. The current Specific Duty Structure has also resulted in higher farmer earnings through use of better quality tobaccos and increased exports. Suggestion Keep the tax rates on cigarettes stable and widen the tax base by reducing the large tax differential between cigarettes and other tobacco products. Maintain the existing specific duty structure as well as the current six tier excise slabs for cigarettes. 6. Central Excise on Steel At present the Central Excise Duty on Steel is 16%. The Induction Furnace Industry produces pencil ingots of mild steels which are used to make bars and rods, small size angles and channels etc. by rolling the ingots. These items are used for construction purposes. The long products for construction are not eligible for CENVAT Credit. For increasing the use of steel products by common people as well as by rural population to make the steel items affordable to them. Suggestion It is suggested that the excise duty on mild steel ingots, produced by Induction Furnace Industry ideally be totally waived off or reduced to 4% from 16%. 7. Compounded Levy Rate of Stainless Steel Compounded levy rate of stainless steel patty/ patta of heading 7219/7220 has been increased in the last budget from Rs. 15,000 per cold rolled machine per month to Rs. 30,000 per cold rolling machines per month. (sr. No. 16 of notification no. 20/06 central excise). Suggestion To make the stainless steel utensil affordable to common people the compounded levy rate should be fixed at Rs. 15000 per CR machine as it was earlier. 8. CENVAT credit on High Speed Diesel/Light Diesel Oil (LDO) There is no provision under the CENVAT credit Rules, 2004 for availing CENVAT credit on High Speed diesel and Light diesel oil. Though High Speed diesel and Light diesel oil are also used in or in relation to manufacture of dutiable goods, the facility of CENVAT credit is denied to the manufacturer. In other words, High Speed Diesel is widely used by all the industries as fuel for the purpose of generation of electricity in DG sets and the electricity so generated is obviously used in or in relation to manufacture of dutiable final product. On account of frequent power shutdown, the industry has to depend on generators for power. When CENVAT credit is allowed on other fuels such as furnace oil, lubricants etc. there is no logic in excluding HSD from the purview of CENVATABLE input. Cenvat credit on light diesel oil was abruptly discontinued with effect from 1.3.2003. LDO is invariably used during the process of extruding aluminium billets into dutiable finished goods. Similarly, LDO is used as a fuel by other industries. Thus, LDO is logically to be brought under the scope of Cenvat credit. Suggestion Therefore, it is requested that HSD/LDO should also be allowed as eligible inputs for the purpose of availing CENVAT credit. 9. Reduction of Excise Duty on Aluminium Products to 8% to increase Consumption of Aluminium It is a matter of great concern that the average consumption of aluminium in the country is about 7 kg as against 20 kg in the developed countries. Even though our country posseses the 5th largest aluminium bauxite deposits, still the use of aluminium is declining. This is due to high cost of aluminium added with high rate of excise duty. At present the price of virgin aluminium metal in the country is around Rs.1,25,000/- PMT, which is the highest in the world. This is due to levy of high customs duty on imported aluminium metal. In the international market, the aluminium metal is available at USD 2,400/- PMT, which comes to around Rs.1,10,000/- PMT, as against the domestic selling price of Rs.1,25,000/- PMT. Thus, the consumers of aluminium in the country are paying higher price by about 8% compared to the consumers in other countries. Over and above this, the Government has levied 16% excise duty and 2% educational cess on the finished aluminium products, which has made it further costlier. Suggestion Against this backdrop we request that excise duty on aluminium extrusions should be reduced from 16% to 8% in order to encourage the use of aluminium products in day-to-day life. 10. Exemption from Excise Duty on Irrigation Pipes and Tubes Aluminium extruded agricultural pipes were being used in large number in sprinkler irrigation equipments about 9 years back, but due to the high cost of aluminium, use of aluminium pipes in sprinkler irrigation system has been replaced by PVC pipes. Even though aluminium pipes have longer life and high resale value, the poor and illiterate farmers do not realise these benefits. The agricultural sector is the backbone of the country. The levy of 2% educational cess has further increased the cost. About a few years ago, agricultural pipes having specified dimensions were exempt from payment of excise duty. As this exemption was withdrawn, the farmers have to pay 16.32% excise duty in addition to the cost of pipes. Suggestion The exemption Notification for levying zero rate of excise duty should be restored on agricultural pipes and tubes used for irrigation purpose. This will benefit farmers and contribute to increase in agricultural production in the country. 11. Sugar Confectionery under tariff 1704 10 00 All Sugar Confectionery falling under residual classification 1704.90 is at 8% rate whereas other low value confectionery products in the Gums category under 1704 10 00 (same classification head) attract the high rate of 16%. Suggestion Reduction of duty to 8% of tariff 1704 10 00. 12. Sugar Confectionery containing cocoa under tariff 1806 90 20 Sugar Confectionery containing COCOA (not chocolate) and falling under 1806 90 20 attracts 16% duty whereas again ‘like’ and same category products (i e Sugar Confectionery) without cocoa but under tariff 1704.90 attract 8% duty ! Comparable low price point products, more so with agro-value addition (cocoa), should be classified under uniform rationale rate of 8%. Suggestion Reduction of duty to 8% of items falling under tariff 1806 90 20. 13. Duty on Wafers coated with chocolate under tariff 1905 32 11 All biscuits regardless of MRP and coated with chocolate attract 8% rate under 1905 31 00 plus all WAFER BISCUIT products under 1905 32 19 too attract 8% duty. If the same wafer is coated with or contains chocolate the duty attracted is double at 16%. No such distinction is made out in the HSN. Further there is no justification for this differentiation as both wafer biscuits and sweet biscuits are same category of bakery products under 1905. Suggestion Reduction of duty to 8% for items falling under 1905 32 11. 14. Health & Nutritional Drinks under tariff 1901 90 90 All fruit or vegetable based drinks attract NIL rate of duty whereas cereal based beverages largely consumed by children attract 16% duty. Further such beverages promote milk consumption and being predominantly cereal based essentially fall in the category of health and nutritional products. Suggestion To exempt all malt or cereal based food beverage products with or without cocoa falling under sub tariff 1901 90 90 from duty. 15. Cocoa Products under Tariff 1806 All cocoa and chocolate products are resultant final products processed from basic agro raw materials viz cocoa, sugar and milk. Hence essentially promote and encourage value addition to horticulture, agriculture and dairy sectors besides providing livelihood to many marginal cocoa growers in Southern India. Cocoa products provide a hygienic and nutritional organized sector alternative to traditional sweets (mithai) which are not subjected to any excise duty. Suggestion To exempt all cocoa and chocolate products under tariff 1806 from duty to provide a positive impact on demand for cocoa, milk and sugar. 16. Central Excise Duty on Bicycles, Parts & Accessories The levy of excise duty on bicycles and part and accessories of bicycles will have an adverse impact on the industry, which had all along been kept out of the excise net, for good reasons. The large number of small units producing bicycle parts and bicycle parts and accessories source their raw materials from both organised and unorganised sectors. With the proposed duty introduction, most of these units will opt for working under SSI excise exemption of Rs 1 crore. The duty incidence on the input cost will add up to their selling price of the components, which will have a cascading effect on the ultimate cost of production of the bicycle. Bicycle market is highly price sensitive. In 1980-81 steel price was Rs 2700/- per ton and the bicycle price Rs 320/-. Today steel costs Rs 32,000/- and the bicycle price is at Rs 1500/-, a clear example of cost absorption by the industry. Suggestion Keeping the above position in view, the industry requests that the exemption should be restored. In the domestic market the poor man's utility needs to remain affordable. In exports the country can ill afford to lose competitiveness. The industry needs conducive environment to pull through and survive difficult times. 17. Food Processing Industry (i) A CVD of 4% on all imports, with a exception has been made applicable to all inputs of the Processed Food Industry like tomato paste, packaging materials and other raw materials. Since finished products are exempt, no CENVAT credit can be taken. It is therefore necessary to include inputs imported for food processing industry in the exemption category. The following key inputs may be exempted: Input Customs Tariff Tomato paste 2002 90 00 Dried Vegetables 0712 (ii) Duty on "Ready-to-eat packaged foods" (Ch 2106 90 99) have been reduced to 8%. `Ready-to-eat packaged foods’ have not been defined, hence it is unclear what products fall in this category. Please clarify. (iii) Duty on Instant Food Mixes : Duty on "Instant food mixes, like dosa and idli mixes" (Ch 2106 90 99) have been reduced to 8%. The examples are illustrative. Confirmation is required on whether that all instant mixes are covered in the exemption. Example: Instant Pre-mix used in Tea, coffee vending machines which is currently classified under Ch 2106 90 99 (iv) Exemption Notification on Food Processing Industry: Notification No 3/2006-CE dated 1.3.2006 Sr.No. 24 exempts Ch heading 2103 – sauces, ketchup and the like and preparations therefor. It is necessary to list the products covered under this exemption notification along with the 8 digit classification code, since the present Notification indicates only the 4 digit heading 2103. The list is given below: Excise tariff Description of goods- 2103 10 00 - Soya Sauce 2103 20 00 - Tomato Ketchup and other tomato sauces 2103 90 10 - - - Curry paste 2103 90 20 - - - Chilli sauce 2103 90 30 - - - Mayonnaise and Salad dressings 2103 90 90 - - - Others The above will be in line with the Govt.’s policy of aligning the notification to 8 digit code and will avoid disputes/litigation in classification. Suggestion Duty on the residual entry Ch 2106 90 99 needs to be specifically exempted or reduced to 8% to promote innovations. (v) Intermediate Products: In the foods industry, there are certain intermediate products which arise during the manufacture of the final product. These intermediate products are normally used captively in same factory in the manufacture of the final products which is exempt. The intermediate products are necessary for the manufacture of the final product and the same are not marketed by the unit. Suggestion It is, therefore, necessary to issue a clarification/notification confirmation that all intermediate excisable products arising during the manufacture of exempted final products will also be exempted. (vi) Residues and Waste from Food Industries – Chapter 2301.00: Residues and waste of the food industries were always exempted from excise duty under Chapter 2301.00. In the new 8 digit excise tariff, this entry does not find specific mention. Suggestion A suitable notification confirming continuation of this exemption be issued at the earliest. 18. Vending Pre-Mixes Rapid urbanization is resulting in a lifestyle that is enhancing the time spent Out of Home working (in offices and institutions), waiting (in railway stations, airports, bus terminals) or playing (in malls, theaters, parks, beaches etc.). Many Indians therefore are beginning to consume their daily requirements of refreshments outside of their homes. Current market estimates (Euro monitor) suggest that consumers spend almost Rs 250 billion for the consumption of unpackaged drinks like tea, coffee and soft drinks whilst they are not in their homes. In this case there is a great need for a convenient, safe and consistent product delivery mechanism for tea and coffee that account for more than 70% of the demand for beverages refreshment out of home. This is the role that is being currently performed by the vending pre-mix suppliers. Vending pre-mixes are a mixture of Tea/coffee, Sugar and dairy whiteners that are mixed with heated water through a machine at the point of dispensing to provide consumers with a safe and hygienic product untouched by human hands. Here it must be pointed out that creating availability of the vending machine products close to where the consumer demands for the same exist, involves high investments in a dispensing machine besides the high cost of rentals that need to be paid to location owners. Whilst this nascent industry is plagued by these problems, high taxation by the government has also impeded its growth and by implication the availability of safe products for the average Indian. It must also be understood that a significant proportion of the current consumption is accounted for by the IT/BPO industry that is a national priority for India. Currently vending pre-mixes are not treated on par with Tea and suffer an excise of 16% besides a VAT of 12.5 %. It is similar in the case of coffee based pre-mixes. Suggestion In view of the above, it is recommended that Tea /Coffee Pre-mixes used in Tea/Coffee Vending machines falling under Chapter 21 of the Central Excise Tariff be excise exempt and also the VAT on the same be reduced to the lowest slab. This will not only lead to rapid growth of the industry but also improve the overall hygiene levels in the country and also allow many members of the weaker sections of society to earn a living as operators. 19. Power Consumption per tonne of Steel produced by Induction Furnaces The power is the main source for melting the raw materials in the induction furnace pot. The quantum of power consumption of per tonne of steel produced depends upon the following: (a) the type of steel melting scrap used; (b) quality and quantity of sponge iron used; (c) the quality of power supplied to the induction furnace units; (d) the refractory materials used in the induction furnaces. The above factors vary very much from one induction furnace to another and therefore, there cannot be any constant figure for power consumption per tonne of steel produced. In case 100% steel melting of good quality is used, the power consumption may be around 700 units per tonne or steel produced through this route. In case quality of steel melting scrap and sponge iron and power supply are not good quality, the power consumption per tonne of steel produced will be much more. It can go upto 1500 units per tonne of steel production. The Commissionerates of Central Excise all over India have stared giving Show Cause Notices to induction furnace units whose power consumption is over 800 units per tonne. Suggestion The power consumption varies according to quality of input raw material and the quality of power used. Against this backdrop, we would request to issue a circular that Show Cause Notices based on power consumption of over 800 units per tonne may be withdrawn. 20. Reduction in Excise Duty on All Categories of Tyres and Tubes from 16% to 8% Current excise duty rate on tyres is 16%. In addition, there are a number of taxes on inputs and services used for production, which are not cenvatable, and hence the tax incidence on tyres works out to be quote high i.e. Much more than 16%. Considering the fact that tyres are essentially fitted in vehicles for transportation of common man and his goods [including tyres for Animal Drawn Vehicles (ADV)], there is need to bring down the excise duty on tyres to 8%. Such a step would make road transport more economically viable, essentially giving relief to the common man. Suggestion Tyre is essential for the growth of economy and used in movement of goods and common man. By reducing excise duty on tyres, road transportation becomes more cheaper thereby reducing the cost of commodities. The excise duty may be reduced from 16% to 8%. 21. Applicability of Section 2(f) (iii) and Section 4A on Parts, Components and Assemblies of Automobiles W.e.f. Ist June 2006, the Central Government has extended the provisions in relation to deemed manufacture under Section 2f(iii) and MRP based valuation under Section 4A to parts, components and assemblies of automobiles falling under any chapter heading of Central Excise Tariff Act, 1985. No clear cut definition or tariff heading for the parts, components or assemblies of automobiles have been provided for the applicability of the said provisions. The aforesaid ambiguity has created lot of confusion in the auto component industry. For example it is not clear whether nut bolts which could be interpreted to mean parts of automobiles are covered under the provisions. Suggestion Definition of parts, components or assemblies of automobiles or mention specific Chapter Heading or tariff heading regarding applicability of said provisions should be specified. This will bring clarity in the applicability of said provision and facilitate better compliance of law. CUSTOMS – POLICY ISSUES Object The object of Customs duty should be to provide due protection to the domestic industry, promote domestic value addition and thereby stimulate economic and industrial activity in the country. Ladder system of Customs duty/Inverted Duty Structure We are supportive of Ladder System of Customs duty to promote domestic value addition. Against this backdrop, the Chamber suggests the following road map for the Customs duty rate; |
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