a peep into some major changes
by
K. Vijay Kumar, M.A.,B.L.,B.Ed.,M.B.A.,
Superintendent of Central Excise
THE ACT :
Section 3
When goods "not allowed" but "cleared" from EOUs :
As per the present Section 3, the duty on goods manufactured in a 100% EOU and "allowed" to be sold in India is the aggregate of the duties of Customs …. This has created a situation where it could be argued that this applies to only goods allowed to be cleared to the Domestic Tariff Area. So obviously this does not apply to goods which are not allowed to be cleared. The peculiar situation is that when goods are to be cleared after obtaining the permission from the authorities, the duty is the aggregate of the Customs duties, but when the goods are cleared without such permission, say clandestine clearances, the amount of duty if any payable is not cleared. An adjudication authority held that allowed to be cleared means ' allowed by the management' and not the development Commissioner. There was a major dispute as to what would be the duty payable by a 100% EOU, after debonding. The
Supreme Court in a recent order held that 'allowed' refers to the 25% allowed for DTA clearances. 2000 (117) E.L.T. 281 (S.C.)SIV INDUSTRIES LTD. Versus COMMISSIONER OF CENTRAL EXCISE & CUSTOMS. The Court observed, "Contention of the Revenue is that permission to withdraw from scheme is itself a permission to sell in India, i.e., when unit is permitted to debond, it would be deemed to have been permitted to sell the goods in India. But then permission to sell in India has to be in terms or in accordance with the provisions of the export import policy. Permission to sell in India by 100% EOU consists of all those factors like value addition, fulfilment of export obligation, sale of a general currency licence holder, item being not mentioned in the negative list and then there being a limit of 25%, etc. When permission to debond is given, none of these criteria or aspects are applied by Board of Approvals (BOA) to the closing stock of finished goods. Board of Approvals is a statutory authority, which permits debonding. It is created under the Industrial (Development and Regulation) Act. On the other hand permission to sell the goods in India under and in accordance with the import policy has to be given by the Development Commissioner in the Ministry of Commerce. Board of Approvals and the Development Commissioner are two different authorities constituted for two different purposes. Permission to debond is a statutory function exercised by one statutory authority. On the other hand permission to sell in India is to be exercised by different statutory authority. If reference is made to para 102 of the relevant import export policy permission of the Development Commissioner is required for selling the goods in India up to limit of 25% by 100% EOU. Para 117 of the policy deals with debonding of 100% EOU. Thus it is apparent that debonding and permission to sell in India are two different things having no connection with each other. It also becomes apparent that in view of the EOU Scheme as modified from time to time and corresponding amendments to Section 3 of the Act the expression "allowed to be sold in India" in proviso to Section 3(1) of the Act is applicable only to sales made up to 25% of production by 100% EOU in DTA and with permission of the Development Commissioner. ( emphasis supplied) No permission is required to sell goods manufactured by 100% EOU lying with it at the time approval is granted to debond.
Revenue has proceeded on the assumption that by debonding permission has been granted by the BOA for selling the closing stock of finished goods in India. This cannot be so. BOA does not concern itself with the manner of the disposal of the closing stock of the finished goods. After debonding it is open to the erstwhile 100% EOU, which is now like any other manufacturing unit in India to sell the goods in India or export it by following the normal procedure"
This issue is sought to be rectified by amending Section 3. The words allowed to be sold in India are now replaced with brought to any other place in India. This will settle quite a few disputes. Of course, this is not made with retrospective effect.
Section 3A to be omitted: The annual capacity determination concept introduced in 1997 and heralded as a revolutionary step in mode of collection, is sought to be given a decent burial, after so much research carried out on the concept and emerging of many a case law on the subject. The connected rules 96ZO,96ZP and 96ZQ are omitted.
Justice delayed is justice denied, Justice hurried is justice buried,
Now, justice in a fairly reasonable time!
A new sub-section 2A has been added to Section 11A to make provision for adjudication of the case within a stipulated period of 1 year or 6 months from the date of issue of show cause notice. There are cases pending for years together in the Department. The famous cartoonist R.K. Laxman had a story on Customs delayed adjudication. Once he got an order from an assistant Commissioner that "proceedings are dropped", when he had all but forgotten that there were proceedings pending against him and all those days, he was a suspect citizen.. The point is cases are kept pending even at the first adjudication stage for pretty long time. There are Board instructions that adjudication should be completed within a month of personal hearing. But due to several reasons, almost always beyond the control of every body, orders do not come out and litigation goes on merrily. Now, it is proposed to make it mandatory to adjudicate the case within six months or one year depending on whether the demand was an ordinary one or invoking suppression, fraud etc,. . Section 11A is proposed to be amended to make provision for passing the adjudication order within one year if there is a fraud, collusion, etc., or six months in other cases of the issue of Show cause Notice. The difference in time allowed for the two different types of cases appear to be not necessary. After all the SCN is issued after investigation. So fraud or no fraud, the adjudication should not take more than six months. Now, the adjudication system is put on fast track. However, there is a catch. The proposed section states "where it is possible to do so". So if adjudication could not be completed within six months or one year as stipulated, it may be construed as " where it was not possible to do so". Quicker adjudication could have been possible if the time limit is stipulated from the date of personal hearing and not date of issue of SCN, or still better, a calendar of events should be statutorily fixed; For example as follows.
- SCN to be issued within six months of detection.( date of detection to be recorded), which can be extended to one year by Commissioner
- SCN to be replied within thirty days – not more than three extensions to be granted.
- The order should be delivered within one week from the date of personal hearing.
Don't wait for a notice to pay up your dues and there will be no duress : (E&OE)
A new sub-section 2B has been added to Section 11A to provide for payment of duty short-levied, short-paid, etc., before a notice is given by the Department. This will apply only to cases coming up after the Finance Bill is enacted. By a genuine mistake, it is possible that sometimes the assessee might not have paid the duty correctly and the assessee himself brings it to the notice of the department. In many cases, the department would immediately pounce on him with a SCN, followed by rigorous adjudication proceedings. Now the assess can pay such duty and inform the department and no SCN would be given.
Interest now from day one (of the next month):
Interest payable to the Department for duties not paid will now start accruing from the first day of the following month, irrespective of whether the demand is due to suppression, collusion, etc., or not. Section 11AA and 11AB are being amended.
Interest by department; rate reduced?
Section 11BB is being amended to make the lower limit of interest payable by the department 5%. It is now 10%. At present, as per Section 11BB, for delayed refunds, the department is liable to pay interest at such rate fixed by the Government by notification, not below 10% and not exceeding 30%. This minimum limit is now sought to be reduced to 5%. However as per Notification No. 41/2000-CE(NT) dated 12.5.2000, it is fixed at 15%.This amendment gives the government power to fix the interest rate as low as 5%. May be this is in tune with the reduced interest rates proposed elsewhere in the budget. If the Government is empowered, it can be reasonably expected that the power is going to be used sooner than later.
Justice in a jiffy ;
less time to appeal to Commissioner (Appeals) :
Section 35 is being amended to
reduce the time limit to appeal to Commissioner (Appeals) to
sixty days from the present three months. Of course Commissioner (Appeals) can grant an extension of one month which is now three months.
Commissioner (Appeals) has to decide , no more remand :
The era of de nova orders by Commissioner (Appeals) is over. Section 35A is being amended to remove the power of sending the case back to the adjudicating authority. He is also to decide the case within six moths of it being filed, of course, "where it is possible". Also, Section 35F is being amended to provide for deciding on an application for dispensing with pre-deposit, within 30 days also "where it is possible".
Superseded / rescinded Rules and Notifications "live" even if not saved :
A new section 38A is proposed in the Central Excise Act to provide life to repealed rules. Also, clause 126 of the Finance Bill proposes to ratify all acts and omissions on and from 28th February, 1944 to the date of passing the Finance Bill. Recently, the Supreme Court, in the Kolhapur Cane Sugar case, kolhapur Canesugar Works v Union of India – 2000(119)ELT.257(SC) held that Rules not covered by a saving clause is gone for ever from the Statute and cannot be enforced. This lapse was pointed out by RK Jain in 1977 in ELT. In the last year ELT carried a couple of articles It may be noted that the erstwhile Modvat Rules (57A to 57U) were replaced by the present Rules 57AA to 57AK with effect from 1-4-2000, without saving the earlier Rules. As per the Kolhapur Judgment, the improper credits could not have been realised from the assessees as the demanding provisions 57I & 57U were removed from the Statute. There were a couple of articles in the ELT last year pointing out this problem. One article even suggested that the Government would come up with a retrospectively valid amendment. This Finance Bill proposes these amendments to overcome this difficulty.
Similar amendments are proposed in the Customs Act also.
CHANGES IN THE RULES :
Storage Tank is Capital Goods :
Rule 57AA(a) amended to include storage tank also in the definition of Capital Goods.
Duty under Section 4 for inputs removed as such :
Sub-rule (1C) has been added to Rule 57AB to provide for payment of duty as per Section 4 for clearance of inputs or capital goods as such. This is a change from the earlier position of payment of appropriate duty as per the Explanation to the earlier rule 57AB(1). So, now for removal of inputs or capital goods as such, transaction value is applicable. The tribunal larger Bench had held that the duty payable on such occasions was the amount of credit taken. 2000 (120) E.L.T. 228 (Tribunal - LB) COMMISSIONER OF C. EX., VADODARA Versus ASIA BROWN BOVERI LTD.. The tribunal observed that "Legal fiction of treating the inputs as having been manufactured by the recipients of the inputs was only to see that the manufacturer restores the original position by debiting the same rate of duty at which he had taken the credit. - The proviso to Rule 57F(1) clearly explains the rationale for creating the legal fiction by providing that duty of excise payable at the time of removal for home consumption shall not be less than the amount of credit that has been allowed in respect of the inputs under Rule 57A. As has been observed by the majority in the Larger Bench decision in American Auto Services case the provision is intended to provide the same benefit availed of by the Revenue where the rate of duty has gone down during the interregnum.".
This was in relation to the old rules. It may not be applicable now. There is another major issue here which needs urgent clarification. What is quantum of duty payable on capital goods on which only 50% credit has been taken, when they are removed as such? This question is remaining without an answer since the Cenvat rules came into existence.
Removal from job-worker's premises now easier :
Rule 57AC has been amended to provide for an order by the Commissioner valid for a financial year instead of for each removal, for clearance of goods from the premises of job-worker. This would simplify removal from job worker.
Credit for duty paid later.
When the old Rule 57E did not find a place in the CENVAT Rules, there was tremendous anguish and later, the Government amended Rule 57AE to include a new clause (1)(i) to provide for credit on additional amount paid as a result of provisional assessments or cost escalation. The earlier Rule 57E had no such restriction. Now, the sub-rule 57AE(1)(i) is amended to almost take the situation back to the good-old 57E days, except for the certification from the Superintendent. This amendment stipulates that the additional amount should not have become recoverable by reason of fraud, collusion, etc.
COMING SOON :
Major overhaul of Rules :
The 234 Rules of the Central Excise Rules, 1944 are going to bid adieu after more than half a century of faithful service. The new Central Excise Rules, 2001 is going to come into force from 1-7-2001 replacing the present set of rules which have been described as "many of the rigidities and technicalities engulfing some of the rules are not compatible with the spirit of tax reforms. Quite a few rules seem to owe their birth to our succumbing to pressure to resolve trivial or peripheral issues. Some others appear to justify their existence to our weakness to remain attached to past, oblivious of the needs of present or future". The new rules, therefore, seek to simplify, reduce and finally act as a facilitator and not as a material for complex and complicated reading.
The important aspects of the present rules like major definitions, appointment of officers, duty to be paid on clearance, provisional assessments, manner of payment of duty, registration, accounts, returns, rebate, export, search, confiscation, penalty and the power to issue written instructions have been retained in the new rules. The new rules do not contain provisions for CENVAT credit, appellate procedures, etc., for which separate rules will be framed. Repetitive and un-understandable provisions like Rules 9, 49, 173G, 173Q, etc., have all made their exit to the more humble, humane and understandable English of new Rules 8, 16, 25, etc. When laws are clear perhaps there will be less litigation; even if there is litigation, there will be better decisions; in any case there can always be retrospective legislation.
EXCISE LAW TIMES – 15. 04. 2001 – A 102
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