No exemption of SAD on goods cleared from SEZ/FTWZ to DTA for self consumption and amendments in the Cenvat Credit Rules, 2004 and the Central Excise Rules, 2002

The Central Board of Excise & Customs (“the Board”) has issued Circular No. 44/2013-Customs dated December 30, 2013 (“the Circular”) to provide clarification on whether the benefit of exemption of Special Additional Duty (“SAD”) would be available when goods are cleared from Special Economic Zone/ Free Trade Warehousing Zone (“SEZ/FTWZ”) to a Domestic Tariff Area unit (“DTA”) for self-consumption i.e. in the nature of stock transfer from SEZ/FTWZ.

It may be noted that Notification No. 45/2005-Customs dated May 16, 2005 (“the Notification”) exempts SAD on the goods cleared from SEZ/FTWZ and brought into DTA. However, no exemption is available if such goods are exempt from payment of sales tax when sold in DTA.

The Board has clarified vide the Circular that benefit of exemption of SAD will not be available in terms of the Notification in cases where the SEZ/FTWZ unit has cleared goods to the DTA unit for self-consumption i.e. otherwise than for sale. Therefore, in such cases, SAD will be leviable.

Open Issue:

If the goods transferred from SEZ/FTWZ to the DTA unit, are further utilized for manufacture and the manufactured final products are sold on payment of appropriate sales tax then exemption from SAD in terms of the Notification should continue but the clarification provided in the Circular will start unwanted dispute & litigation.

Amendment in the Cenvat Credit Rules, 2004 (“the Credit Rules”) and the Central Excise Rules, 2002 (“the Excise Rules”)

The Finance Minister had constituted a Forum under the Chairmanship of Dr. Parthasarathy Shome and the Forum had received certain difficulties faced by the trade and there was one of the issues:

Issue: The earlier practice of endorsement of Bill of Entry by customs officer to an importer has since been dispensed with. This has led to ambiguity as to the mechanism by which CENVAT credit would be available to a subsequent manufacturer receiving the imported goods.

Decision provided by Forum: A process is being designed to get the importers to register with the Department, who may then more easily pass on the CENVAT credit of CVD to a manufacturer. The new mechanism will be in place by 31/12/2013.

Effective changes made to resolve the issue:

Rule 9 of the Excise Rules provide the list of persons who are required to obtain registration under the Central Excise Act, 1944 (“the Excise Act”). Notification 17/ 2013-Central Excise (N.T.) dated December 31, 2013 (“Notification No. 17”) has amended Rule 9(1) to include the importers issuing an invoice on which Cenvat Credit can be taken, in the list of persons who are required to obtain registration under the Excise Act.

Notification 18/ 2013-Central Excise (N.T.) dated December 31, 2013 (“Notification No. 18”) has amended Rule 2(ij) of the Credit Rules, which provides the definition of First Stage Dealer. Amended definition of First Stage Dealer is reproduced here under:

First stage dealer means-

i. a dealer, who purchases the goods directly from the manufacturer under the cover of an invoice issued in terms of the provisions of the Excise Rules or from the depot of the said manufacturer, or from premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or

ii. an importer who sells goods imported by him under the cover of an invoice on which Cenvat credit may be taken and such invoice shall include an invoice issued from his depot or the premises of his consignment agent.

Further, there is corresponding changes in Rule 9 of the Credit Rules, which provides the list of eligible documents on the basis of which the manufacturer or output service provider or input service distributor can avail Cenvat credit.

Summary of Changes made in the Excise Rules and the Credit Rules:

• An importer issuing Cenvatable invoice is now made a “First Stage Dealer”

• Registration is made mandatory for importers issuing invoices on which CENVAT Credit can be taken

Note: These changes are effective from 1.3.2014.

Article Courtesy- Bimal Jain

 FCA, FCS, LLB, B.Com (Hons)