Central Excise (No. 2) Rules, 2001

 

- AN OVERVIEW

 

by

 

VIJAY. K. KUMAR

 

There was a once a king who asked his minister whether he could make for him a horse that would fly. The minister answered that he could, as he knew the King would not accept 'no' for an answer. Then the King asked the minister to go ahead with making the horse and promised to his people that he is getting a horse that could fly. He also assured the minister that if the horse did not fly his (minister's obviously) head would. The minister went home and started work in earnest. He would gather wood, paint etc and made a big show of making the flying horse, which the King would periodically inspect. The king was satisfied with the glowing presentation about the horse that the minister would give him and which would be ready to fly any day. But the minister's daughter was worried. Half wit, though she was, she knew that her father could never make a horse that could fly. So she asked her father how he planned to save his head. The wise minister replied, " baby, so many things could happen – our kingdom could be attacked and annexed by another king or the king may die or I may die or the king may become mad and forget about the project or he may realise that after all the horse can not fly and call off the project or the horse may fly.

 

The simplification and codification of Central Excise law started with a bill in the Central Legislature some 58 years ago.

 

" The Act and the consolidated statutory rules together with manuals of departmental instructions, will then form a complete Central Excise code, which will simplify the administration of this branch of the revenue system…" This is an extract from the Statement of Objects and Reasons to the Central Excise and salt Act 1944 presented on 10^th November 1943! The process of simplification and consolidation has been an on going one for the last half a century and more. The horse is yet to fly!

 

Five sets of rules replacing the existing Central Excise rules have been notified.

 

Now whenever you think of Central Excise rules, you have to think of

1. The Central Excise Rules 1944, the shadow of which will loom large for some more time.
   
2. The Central Excise Rules 2001, which had a premature death. These rules were to come into force from 1.7.2001 but were rescinded by rule 33 of (3) below
   
3. The Central Excise (No. 2) Rules, 2001
   
4. The CENNVAT Credit Rules, 2001.
   
5. The Central Excise (Appeals) Rules, 2001
   
6. The Central Excise (Settlement of Cases) Rules, 2001.
   
7. The Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001
   

 

And several Notifications and instructions are yet to be released.

In this article, we shall have a cursory glance at some of the glaring features of Central Excise (No. 2) Rules, 2001

For convenience sake we shall call the Central Excise Rules 1944 as Rules No.1, the Central Excise Rules 2001 as Rules No. 2 and the new Central Excise (No.2) Rules as Rules No. 3

 

Rule 3. Appointment and jurisdiction of Central Excise Officers.-    (1) The Board may, by notification, appoint such person as it thinks fit to be Central Excise Officer or to exercise all or any of the powers conferred by these rules, on such officer.

This is almost exactly like the existing Central Excise Rules 1944.(Rules No. 1) The still borne Central Excise Rules 2001(Rules No. 2)tried to change it to, "The Board may appoint such Central Excise Officers as it may deem fit to exercise all or any of the powers conferred by or under the Act and the rules made there under". By this change, the Board could have appointed only Central Excise officers to exercise the powers under the Act and rules. This really does not matter as Section 2(b) of the Act contains, "(b) "Central Excise Officer" means the Chief Commissioner of Central Excise, Commissioner of Central Excise, Commissioner of Central Excise (Appeals), Additional Commissioner of Central Excise, Joint Commissioner of Central Excise, Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise or any other officer of the Central Excise Department, or any person (including an officer of the State Government) invested by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) with any of the powers of a Central Excise Officer under this Act;"

Any way the old rule is back. So the change after all was not necessary.

Sub rule 2 of Rule 3 provides for specifying the jurisdiction of Chief Commissioners, Commissioners and Commissioner (Appeals). If the jurisdiction of a Chief Commissioner has to be specified, is it not necessary to specify the jurisdiction of other officers like Inspectors, superintendents etc.?

A new rule 3(3) is added now, "(3) Any Central Excise Officer may exercise the powers and discharge the duties conferred or imposed under the Act or these rules on any other Central Excise Officer who is subordinate to him.

This is an almost verbatim reproduction of Section 12E. This was not there in the just dead Rules No. 2 and rightly so. When the Act provides for this, it may not be required for the Rules also to provide for this. At least it was not done in the Central Excise Rules 1944 or the Central Excise Rules 2001. In any case as far as the Act is concerned, it is already taken care of. At best this should have been restricted to rules only. This rule seems to be a poor replacement for Rules 5 and 6 in the Central Excise Rules 1944 relating to delegation of the powers of the Commissioner and discharge of certain duties by Commissioner and Joint commissioner.

Now there is no provision for delegation of Commissioner's powers.

 

Provisional assessment: Rule 7 now provides for finalisation of Provisional assessment within a period of six months which of course can be extended up to a further six months by Commissioner and indefinitely by Chief Commissioner. This is a welcome change to reduce the ever-pending provisional assessments in the department. What about assessments pending finalisations for the last many decades? And there is no provision for the department to order provisional assessment!

 

The new rule also provides for payment of interest in cases of duty payment as a result of finalisation of provisional assessment.

It also provides for refunds, which was conspicuously absent in the previous rules. But refund is far from clear.

 

Sub rule 6 says, " Any amount of refund determined under sub-rule (3) shall be credited to the Consumer Welfare Fund:

 

Provided the amount of refund, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to-

1. the duty of Excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person, or
   
2. the duty of Excise borne by the buyer, if he had not passed on the incidence of such duty to any other person.
   

 

It is not clear whether the refund under this clause has to be claimed under Section 11B. In fact the problem of refund arising out of finalisation of provisional assessment has seen protracted litigation especially in view of the apex court's observation in the famous Mafatlal case that Section 11B is not applicable to refunds arising out of finalisation of provisional assessments.

Now this new rule is bound to create problems.

It speaks of an applicant. So obviously there has to be an application. Equally obvious then is that the application has to be under Section 11B. If it is so, all the conditions of 11B apply and then there is no need to mention the passing of incidence of duty. Now as per the rule, the refund has to be given to the applicant even if the buyer has not passed on the incidence to any other person. Clause (b) is the future litigation.

 

Asa per Rule 8(3)     If the assessee fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with interest at the rate of twenty four per cent. per annum on the outstanding amount, for the period starting with the first day after due date till the date of actual payment of the outstanding amount.

 

There is no time limit before which the assessee has to discharge his obligation to pay duty with interest. If he is prepared to pay interest he can postpone the payment indefinitely.

 

Rule 8(4) (ii) now reads if the assessee defaults
"(ii) in payment of instalment by the due date for the third time in a financial year, whether in succession or otherwise" then he shall forfeit the facility to pay the dues in instalments.xxxxx.

The words for the third time were missing from the earlier rules. This lapse was pointed out by this writer in 2001(129)ELT A223

 

 

Registration: - Rule 9 dealing with registration has undergone a major surgery. The detailed procedure given in the Rules No. 2 do not find place in Rules No. 3. The Board is now to specify the procedure.

 

Rule 9(1) reads , "Every person, who produces, manufactures, carries on trade, holds private store-room or warehouse or otherwise uses excisable goods, shall get registered"

 

Now this rule stipulates that people who carry on trade, has a private store room or otherwise uses excisable goods should get registered. We all use excisable goods. If this rule is to be implemented every citizen of India has to get registered with Central Excise under Rule 9. Of course as per Rule 9(3), Board can specify persons who may not require such registration. In Rules No. 1, it was ' who need not obtain such registration' (which appears to be more sensible.)

What is private store- room? The rules have no answer.

 

Rule 9(1) now has a proviso that the registration obtained under rule 174 of Rules No. 1, would be valid. This is a very good piece of legislation. It seems in 1994, when registration was introduced in place of licence, there were complaints of Central Excise officers demanding money to convert the licence certificates to registration certificates. May be the Government wants to prevent the recurrence of such misuse.

 

As per Rule 11, goods are to be removed on an invoice. Invoice has not been defined. Each foil of the invoice book is to be authenticated. This pre supposes that the invoice is in a book. Can't the invoices be in loose foils and typed? Then where is the question of invoice book? The invoice shall be serially numbered, but the rule is silent as to " from when"? Like can he have the invoice serially numbered from 4500 from the 15^th of a month to the 13^th of the next month and so on. What about computerised invoices? Allowed? No? Guess?

 

Return of duty paid Goods. Rule 16 is another rule that saw a major overhaul, certainly not for the better. The new rule is so confusing that it needs reproduction here.

 

1. Credit of duty on goods returned to the factory.-     (1) Where any goods on which duty has been paid at the time of removal thereof are subsequently returned to the factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such return in his records and shall be entitled to have CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2001 and utilise this credit according to the said rules.
   

 

1. If the process to which the goods are subjected before returning does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods returned under sub-rule (1) at the rate applicable on the date of removal and on the value determined under section 4 or section 4A of the Act, as the case may be.
   

 

1. If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.
   

 

Sub rule 2 supposes that the goods are returned for some process, but sub rule 1 allows return for any other reason. Sub rule 2 also speaks of process before returning; this is obviously after returning and before the subsequent clearance. Otherwise the rule has no meaning and most often there would have been no process at all before returning. Perhaps what the rule means is that when the goods returned are subsequently cleared without any process amounting to manufacture, duty as applicable under Section 4 has to be paid. Perhaps the law makers were so aware that this rule does not sound all that clear that they inserted rule 3 which states "If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2)," ,
xxx subject to conditions specified by the Commissioner.

 

Rule 16 raises several other questions.

1. Can duty paid goods be retained in the factory for clearances as and when he likes? There was a restriction under rule 51A and 173 H in Rules No. 1.
   
2. Is this rule a facility or a restriction? Is there no bar on return of duty paid goods? If he does not want Cenvat credit, can he bring in duty paid goods with out any restriction?
   
3. Can rejected goods be brought back and cleared to another buyer?
   
4. Can duty be imposed under a rule? Is it valid?
   
5. What happens if the returned goods are not used and not cleared at all?
   
6. The returned goods are apparently to be cleared by payment of duty as applicable at the rate and value on the date of clearance. Suppose the rate of duty at the time of first clearance was 16% and later the duty is exempted. Then can these same goods be returned, credit of 16% taken and later they be cleared at nil rate?
   

 

Under Rule 18 rebate is granted on exports. Explanation to this rule says that export includes ship stores. Rule 19 allows export of excisable goods in bond without payment of duty. Now does export under rule 19 also include ship stores? This doubt arises as the explanation is given only for rule 18. So the question remains, " can ship stores be cleared under bond without payment of duty?"

 

Access to Registered premises. Rule 22 has also under gone a major change since Rules No. 2,

 

22.    Access to a registered premises.-     (1) An officer empowered by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

 

(2) Every assessee shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of all the records prepared or maintained by the assessee for accounting of transactions in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods.

 

(3) Every assessee shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India,-

1. the records maintained or prepared by him in terms of sub-rule (2);
   
2. the cost audit reports, if any, under section 233B of the Companies Act, 1956 ( 1 of 1956); and
   
3. the Income-tax audit report, if any, under section 44AB of Income-tax Act, 1961 ( 43 of 1961),
   

for the scrutiny of the officer or audit party, as the case may be

 

As per sub rule 1, for officers to visit a factory, they are to be empowered by the Commissioner. The Commissioners normally empowers all officers of and above the rank of Inspector for this purpose. Now as per sub rule 2, the assessee is required to furnish to the empowered officer a list in duplicate of all the records. So whenever an officer visits a factory, the first thing the assessee has to do is furnish a list in duplicate. He will be contravening the rules if he doesn't. See the wording, " shall furnish", whereas under sub rule 3 certain records are to be furnished "on demand". But there is no such clause in sub rule 2. It is shall.

 

General penalty.-     As per rule 27 a breach of these rules shall, where no other penalty is provided , be punishable with a penalty which may extend to five thousand rupees xxxxx.

As per rule 7, the Assistant Commissioner is required to pass an order for finalisation of provisional assessments within six months. Can he be imposed a penalty under rule 27 if he does not pass such an order?

 

There are several other areas which require clarification/change draft and re draft. Some of them are.

1. What is account current? How is duty to be credited?
   
2. What is domestic tariff area?
   
3. Is the invoice required to be carried along with the goods and shown to any Central Excise officer on demand?
   
4. Can a Central Excise officer stop a vehicle?
   
5. In how many copies is the monthly return to be filed?
   
6. What is the rate and value in cases of loss of goods and goods not accounted for?
   
7. Can duty be paid under protest and if so how?
   
8. Are there no restrictions on budget day clearances? Or will there be new rules for that?
   
9. How to claim refund?
   

 

The rules are silent on the above questions.

And can you imagine a set of rules framed in 2001 does not say anything about computerised accounts and documents. Rules No. 1, had a provision in rule 226A for electronic maintenance of records. I wish byte by byte we go electronic!

 

EXCISE LAW TIMES – 15.07.2001– A97