Tax II Project

POWER TO GRANT EXEMTION FROM DUTY OF EXCISE

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CHAPTER – I: INTRODUCTION: I NTRODUCTION: BACKGROUND OF EXCISE AND CUSTOM DUTY UNDER INDIAN CONSTITUTION

The delicate duty of devising schemes of revenue should be left where the Constitution has placed it— with the representatives of the people. -William Henry Harrison. 1 Prior to the independence of India there was no plan of economic development nor was there any 'attempt at building up a Welfare State'. 2 Organized industry except cotton and jute was still in its infancy and the hulk of the country's requirement by way of manufacture was met by imports from abroad. In the field of public finance, customs dominated the central revenues. The condition changed vastly after India's independence. The country adopted a programe of increased developmental expenditure and the concept of a welfare state became an accepted objective, involving increased expenditure on social services. The number of manufacturing industries grew within the country, resulting in a significant change in the complexion of the country's import trade and consequently in increasing reliance on central excise duties. 3 Though increasing industrialization industrializ ation reduced the share of customs as a major and expanding source of revenue revenue yet it constituted a major partner with with central excises in the tax system. The Constitution of India closely follows the pattern of division of tax powers between the centre and the states established by the Government of India Act, 1935. 4 Under the federal character of the powers are vested in the states but residual Constitution, fairly wide powers of legislation belong to the Union. The taxing powers of the Union and the states, under the Constitution are provided in Article 246, which deals with the distribution of subjects between the Union and the states and also provides for a field of concurrent jurisdiction.5

1 2

3 4

9th, U.S. President . Report of he Taxation Enquiry Commission, Vol. I, p. 3.

Ibid., pp. 3-4. The division under this Act was specified as follows:

Excise duties on alcoholic liquors for human consumption Indian here other narcotics went to the provincial governments. Excise duties on tobacco and other excisable manufactured goods were allotted to the centre. The division of-excise duties into provincial and central excises was actually brought about in the government of India Act of 1919, since in the predecessor Government of India Act of 1909; the administration administration was left largely in the hands of Provincial governments. 5

Article 246 which falls under Part XI dealing with relations between the Union and the States reads:

(1) Notwithstanding anything in clauses (2) and (3) Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred referred to as the 'Union List').


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The Powers of the States and the Centre: The Seventh Schedule to the Constitution specifies the

subjects of legislation under three lists. List I of the Seventh Schedule specifies the subjects for Central legislation and List II thereof specifies the subjects of State legislation. List III is a concurrent list. 6

Enumerated in List I, inter alia are duties of customs including export duties and duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption; opium, Indian hemp, and other narcotic drugs and narcotics but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. 7

Entry 51 of List II of the Seventh Schedule inter alia, reserves the power to the states to levy excise duty on alcoholic liquor for human consumption and other narcotic drugs and narcotics. In other words, the centre has power, exclusively, to make laws imposing a duty of excise on tobacco and other manufactured goods manufactured or produced in India, including medicinal and toilet preparations containing alcohol or opium, hemp, or other narcotic drugs and narcotics excepting alcoholic liquors for human consumption and on opium, hemp and other narcotic drugs and narcotics. 8

Before the coming into force of the Constitution even `medicinal and toilet preparations containing alcohol or any other substance included in sub-paragraph (b) of Entry 84 of the Constitution fell under item 40 of List II of the Seventh Schedule to the Government of India Act, 1935 but the Constitution, however, made a change in the legislative list and `thus took away the power of states to impose duties of excise on medicinal and toilet preparation containing alcohol or any substance like opium etc., and gave that power to the union. 9 However, by virtue of Article 277 of the constitution ‘the state governments continued to levy excise duties on medicinal and toilet preparations containing alcohol, opium etc., till 1957 as parliament had made no law to the contrary then. 10

(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the 'Union List'). (3) Subject to clauses (10) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution, referred to as the 'state List'. (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State list 6 7 8

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Entry 83 List I, Seventh Schedule to the Constitution of India. Entry 84, List I, Seventh Schedule, Ibid. M.B.S. Oushadalaya v. Union of India, AIR (1963) SC 622 (623).

Ibid.

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Ibid., Parliament passed the medicinal and toilet preparation (Excise (Excise Duties) Act, No. 16 of 1955. Article – 277 above referred to reads: Any taxes, cesses, duties or fees which immediately before the commencement of this constitution were being lawfully levied


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Custom and excise duties as well as sales taxes are commodity taxes. As seen earlier, with exception of a few modified commodities all excise taxation in the country is controlled by Central Government. The tax revenue of Central Government is derived from three main tax heads. They are (i) taxes on income; (ii) customs; and (iii) central excise duties. We are concerned here with the latter two heads of taxes.

Although the Indian Constitution does not make any distinction between direct and indirect taxation,11 yet duties of customs and excise are deemed and understood as indirect taxes, which are in 'essence trading taxes and not taxes on property' which are generally regarded as direct taxes. 12

Customs duties are levied upon commodities imported into the country from other countries or exported out of this country. 13 The former duty is referred to, as the import duty while the latter is known as an export duty. Customs duty is essentially imposed on commercial dealings and is concerned more with the business of importation or exportation than with the person or the goods. 14

An import duty is imposed both for revenue as well as for protective purposes, although a major portion of the yield from import duties is from revenue duties than from protection duties." Similarly, export duties are levied for various purposes. The pre-War export duties were primarily imposed for producing moderate revenue receipts from commodities, which had a comparative strong position in export markets.91 After 1946, heavier export duties were imposed on a greater number of commodities in part to provide additional resources hut primarily to control inflation, stabilize prices in the internal market, and discourage the export of raw materials used in Indian manufactures.' However, the Indian Fiscal Commission while recommending the imposition of an export duty 'primarily on articles in which India had monopoly or semi-monopoly' suggested that the level oldie duty should be moderate."

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Duties of customs including export duties are levied with reference to goods, the taxable event being either the import of goods within the customs barriers or their export outside the customs barriers. 16 The term `duties of excise' is of a very general and flexible import and in different countries is often used to cover a variety of taxes on commodities, transactions, and services." The ‘primary and fundamental by the government of any state or by any municipality or other local authority or body for the purposes of the state, district, municipality or other local area may. Notwithstanding that those taxes, duties or cesses or fees are mentioned in the union list, continued to be levied and to be applied to the same purposes until provision to the contrary is made by parliament by law. 11 12 13 14 15 16

In Re Sea Customs Act, 1878, AIR (1963) SC 1760, pp. 777, 1782 Ibid John Matthai (1953-4), Report of the Taxation Enquiry Commission, Vol. II, p. 21 Ibid, Vol. I, P. 21 Ibrahim Raheemtoola, (1921- 2), Report of the Indian Fiscal Commission, p. 104 In Re Sea Customs Act, 1878, AIR (1963) SC 1760, pp. 777, 1782


meaning' of excise in India is that of a tax on articles 'produced or manufactured in the taxing country and intended for home consumption’. 17 The stage at which the duty is collected does not alter the nature or character of the tax. It may be collected at the time when the state finds it most administratively convenient. As Gwyer describes it in In re. Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, 18 it is the 'producer or manufacturer from whom the duty is collected 19 and the duty may be imposed 'at the stage which the authority finds it most convenient and most lucrative. 20 The stage of collection was but a matter relating to the machinery devised to collect the tax which does not affect the 'essential nature of the tax. 21 In the words of Gwyer. 22

The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends; and it continues to be an excise duty, that is, a duty on home produced goods, no matter at what stage it is collected.

Jayakar in the same case observed thus:23 And this, in my opinion, is as it should be, for if the proper import of an excise duty is that it is a tax on consumption, there is no reason why the State should not have the power to levy and collect it at any stage before consumption, namely from the time the commodity is produced or manufactured up to the time it reaches the consumer.

The Federal Court in Province of Madras v. Boddu Paidanna and Sons further considered the scope of 24

the term ‘duties of excise. The question here was whether a provincial tax on the first sales of his products by a manufacturer, under the Madras General Sales Tax Act, 1939 was valid. It was contended that being a tax on a manufacturer, it was an excise and not a sales tax. The Federal Court declared the tax valid. The Court pointed out that the term 'duties of excise' were duties 'levied upon the manufacturer or producer in respect of manufacture or production of the commodity taxed'. 25 The tax on the ‘sale of goods was a tax levied on the occasion of the sale’.26 A tax levied on a manufacturer on the first sales of his

17 18 19 20 21 22 23 24 25 26

In re the Central Provinces and Berar Act No. XIV of 1938; (1939) FCR 18; AIR (1939) FC 1, p. 6 – 36. Ibid Ibid Ibid Ibid Ibid Ibid., p. 36 AIR (1942) FC 33. Ibid., p. 35 Ibid

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products was ‘levied on him manufacturer or producer’. The qua seller and not qua excise duty is attracted by the fact of manufacture even though it may be collected later and the liability to pay arises on 28

the ‘occasion of a sale has no necessary connection in the manufacture of production’. The court held that the power of the provincial legislature to levy a tax on the sale of goods extended to the sales of every kind whether first sale or not. In the words of the court: 29

Plainly, a tax levied on the first sale must, in the nature of things, be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well he that a manufacturer or producer is sometimes doubly hit...If the taxpayer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be overlapping in one sense, but there is no overlapping in law. The two taxes, which he is called on to pay, are economically two separate and distinct imposts. There is, in theory, nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away...It is the fact of manufacture which attracts the duty even though it may be collected later. In the case of a sales tax, the liability to tax arises on the occasion of a sale and a sale has no necessary connection with manufacture or production.

The Privy Council accepted the above view of the Federal Court in Governor-General in Council v. Province of Madras.30 It held that a `duty of excise' is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced.

The Supreme Court of India on Duty of Excise

The first exposition of the subject by our Supreme Court after independence is found. In Firm Ram31

Krishna Ramnath Agarwal, Kamptee v. The Secretary, Municipal Committee, Kamptee.

The Court had to distinguish an excise duty from an octroi duty. 32 While endorsing the views of the Judicial Committee in the aforesaid Privy Council's decision, 33 the Supreme Court stated that when in the Constitution there are two complementary powers, each expressed in precise and definite terms 'there can be no reason in such a case for giving a broader interpretation to one power rather than the other and there is certainly no reason for extending the meaning of the expression duties of excise at the expense of the 27 28 29 30 31 32 33

Ibid Ibid Ibid AIR (1945) PC 98. AIR (1950) SC 11 The ‘tem octroi’ is used to denote a Municipal tax n entry of goods in to the municipal limits for use, consumption or sale thereof Governor-General in Council v. Province of Madras .


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provincial power to levy taxes on sale of goods. The court held that while ‘excise duty is a tax on manufactured goods’,35 an `octroi duty is a tax levied on the entry of goods within a particular area. 36 In 37

this case, the appellant had brought tobacco to Kamptee from outside, to make bidis. On the tobacco so 38

brought in, the Kamptee Municipality levied octroi duty. It was against the order of assessment o the duty that appellant filed an appeal to the Extra Assistant Commissioner and contend that municipality had no right to claim octroi duty under sec – 66 (1) (e) of the Municipality Act, 1922 39 as under Section 3 of the Central Excises and Salt Act,1944, a duty was levied on tobacco by the Central Government and the levy Of the octroi duty' on the tobacco in question was covered by the excise duty and therefore, not permissible. This contention was rejected by the Supreme Court, which held as above and observed:

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Excise duty is a tax on manufactured goods, octroi duty is a tax levied on the entry of goods within a particular area. Under the excise. Act,41 tobacco becomes excisable goods within the meaning item 9 of 42

the schedule. The subsequent use of such manufactured goods in making different articles only effects the rate of tax. Therefore, tobacco becomes subject to excise duty when it reaches the stage of manufacture mentioned in Item 9 to the Excise Act. Even before it is converted into bidis or any other article mentioned in the entry it has become excisable goods and liable to pay excise duty. The levy of such a duty is not in conflict with the impost on the entry (lithe goods within a certain area. In Murli v. UP 43 the Allahabad High Court reiterated the position as follows:44 A duty of excise is primarily a duty levied on a manufactured or producer in respect of the commodity manufactured or produced'. The Calcutta High Court in the Aluminum Corporation v. Coal Board 45 adumbrated the scope of duties of excise. Referring to the decision of the Federal Court Boddu Paidanna's case, the Calcutta High. Court observed:

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35 36

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Ibid., p. 13 Ibid., p. 14 Ibid

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Smoking tobacco rolled up in a special type of leaf, which is dried first. Smoking of bidis is very popular in rural India where it is produced in small- or medium-sized factories known as cottage industries. 38 39 40 41 42 43 44 45

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Kamptee is a place in Central India The Central Provinces and Berar Municipalities Act,1922. Ibid The Central Excises and Salt Act, 1944 First Schedule to the Central Excises and Salt Act, 1944. AIR (1957) All. 159. Ibid. 164. AIR (1957) Cal. 222. Ibid., p. 228


The characteristic which marks a duty of excise is that it is a duty on goods and manufacture or production within the country being the sole and sufficient basis for imposing the duty on goods concerned, where that basis is present and the duty is imposed on that basis, it is a duty of excise, irrespective whether the goods are subsequently sold to others or consumed by the owner or producer. The scope of the term duties of excise was again considered in Chotabhai Jethabhai Patel v. Union of 47 48 49 India, R. C. Jail v. Union of India; and in McDowell and Co. Ltd, v. Commercial Tax Officer , where

the Supreme Court discussed and reiterated the above principles.

While on the subject, mention may be made of the distinction that exists between a countervailing duty 50

that is levied under the Customs Tariff Acts 1975 and a duty of excise. The question came to be discussed by the Supreme Court in Kalyani Stores v. State of Orissa. 51 Although the countervailing duty discussed by the Supreme Court is with reference to the said duties by a state, under the Bihar and Orissa Act of 1951 in terms of Entry 51 of the Seventh Schedule13' in the Constitution, it serves to convey the meaning of the term so as to distinguish the same from an excise duty.

47 48 49 50 51

AIR (1962) SC 1006 AIR (1962) SC 1281 AIR (1977) SC 1459 Act no. 51 of 1975, 18 August 1975 AIR (1966) SC 1686

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CHAPTER – II: LEVIABILITY OF EXICISE DUTY In today’s World the relevance of taxes are a lot more than just financial aid to the Government. It is also, the money that goes in for building the future of a nation. India being a democratic country requires this aid through taxes. The Central Government levies taxes along with the state government to their respective states. There are a few taxes that are levied by the local Municipality as well. Excise Duty falls under the Central Government of India.

This tax is levied on certain goods for their production or sale catering or on licenses on specific services and activities. Excise duty is an inland tax unlike custom duties is an inland tax. Also this duty charges are a form of indirect tax. Indirect taxes are generally collected by a retail store or an intermediary body from the person who ultimately bears the responsibility of paying the tax as a consumer. The producer of the goods then pays this tax to the government. This amount is excise of the VAT (Value Added Tax) and sales tax that is charged to the consumers when purchasing a good.

The primary and fundamental meaning of "excise duty" or Duty of excise is tax on articles produced or manufactured in the taxing country and intended for home consumption (i.e. consumption within the same country). It is an indirect duty which the manufacture or producer passes on the ultimate consumer, that is, its ultimate incidence will always be on the consumer. What attracts the duty of excise is an activity, namely, the production or manufacture of goods.

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The excise duty falls under the Excise Duty Act, 1944. The State Government charges them on certain goods such as narcotics, alcohol or alcoholic products, the duty charges on other goods are collected by the Central Government, hence the term, ‘Central Excise Duty’. The tax is however, collected by the Government when the good are being removed from the factory and dispatch.

Article 246(1) of Constitution of India states that Parliament has exclusive powers to make laws with 53

respect to any of matters enumerated in List I in the Seventh Schedule to Constitution . As per Article 246(3), State Government has exclusive powers to make laws for State with respect to any matter enumerated in List 11 of Seventh Schedule to Constitution. List III 54contains entries where both Union and State Governments can exercise power. 52 53 54

http://www.servicetax.com/central.php Called ‘Union List’ Called concurrent list


Union List relevant to taxation - List I, called "Union List", contains entries like Defence of India,

Foreign affairs, War and Peace, flanking etc tries in this list Relevant to taxation provisions are as following: Entry No 82 - Tax on income other than agricultural income. Entry No. 83 Duties of customs including export duties. Entry No. 84- Duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, narcotic drugs, but including medicinal and toilet preparations containing alcoholic liquor, opium or narcotics. Entry No. 85 - Corporation Tax. Entry No. 92A - Taxes on the Sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of Interstate trade or commerce. Entry No. 92B - Taxes on consignment of goods where such consignment takes place during Interstate trade or commerce. Entry No 92C - Tax on services Amendment passed by Parliament on 15-1-2004, but not yet made effective]. Entry No. 97 - Any other matter not included in List II, List HI and any tax not mentioned in list or list Ill. (These are called ‘Residual Powers’) State list pertaining to taxation - State Government has exclusive powers to make laws in respect of

matters in List II of Seventh Schedule to our Constitution. These entries include Police, Public Health, Agriculture, Land etc. tries in this list relevant to taxation provisions are as fallow. Entry No. 46 - Taxes on agricultural income. Entry No 51 - Excise duty on alcoholic liquors, opium and narcotics. Entry 52 – Tax on entry of goods into a local area o consumption, use or sale therein 55 Entry 54 – Tax on sale or purchase of goods other than newspaper except tax n interstate sale r purchase.

Laws relating to Central Excise

Provisions regarding central excise are covered under various Acts and Rules, as under : Central Excise Act, 1944 (CEA) - This is a basic act providing for charging of duty, valuation, powers

of officers, provisions of arrest, penalty, etc Central excise rules – As per usual scheme of any Act, Section – 37 (1) of the Central Excise Act

[parallel section – 156 (1) of Customs Act] grants power to government to frame rules to carry into effect the purpose of Central Excise Act. Rules can make provisions of penalty and prosecution 56. Section – 38

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usually called octroi Section 37(3) and 37(4) of CEA – no parallel provisions in Customs Act

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POWER TO GRANT EXEMTION FROM DUTY OF EXCISE 57

of CEA provides that the rules should be made by issue of a notification. The rules should be placed before parliament for 30 days when parliament is in session. The important rules are Central Excise Rules, Cenvat Credit Rules and Central Excise Valuation (Determination of Price of excisable Goods) Rules, 2000. Notification – Under section – 5A and 11C of CEA, Central government has been granted power to issue

notification for granting partial o full exemption from excise duty. Similarly, central excise rules also provide for issue of notification in respect of various matters. Each of the rules and notification has to be placed before each House of Parliament foe a total period of 30 days. The period may be comprised in one or more session. If parliament decides to amend any of such rules or notification, it will have effect in modified form. Otherwise such rules or notification will remain effective. The rules and notification are treated as part of the Act itself. Thus, rules and notification issued under Central Excise Act have full legislative backing.

Nature and chargeability of Central Excise duty.

Central Excise duty is an indirect tax levied on goods manufactured in India. The taxable event under the Central Excise law is manufacture and the liability of Central Excise duty arises as soon as the goods are manufactured. The duty, though it becomes payable on the manufacture of goods, is collected at the time of removal of goods from the factory.

Acts and Rules for the collection of duty of Excise.

The Central Excise duty is collected under the authority of the Central Excise Act, 1944 at the rates specified under Central Excise Tariff Act, 1985. This duty is commonly referred as the Basic Excise Duty. In addition to this duty a few textile items, like fiber, yarn etc. also attract Additional Excise Duty under Additional Duties of Excise (Textiles and Textile Articles) Act, 1975. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Miscellaneous Cess Acts provide authority for collection of Additional Excise Duty and Cess respectively on several manufactured items over and above Basic Excise Duty.

Procedure for collection of duty.

The following types of procedures are being followed by the Central Excise department for levy and collection of the Central Excise duties:1. Physical Control – Applicable to cigarettes only. Here assessment precedes clearance which takes place under the supervision of Central Excise officers;

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Parallel section – 159 of Customs Act

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2. Compounded levy scheme – Applicable to Stainless Steel Pattis/Pattas, Aluminium circle, Processed textile fabrics – by independent processors, Embroidery in the piece, in strips or motifs, ingots and billets of non alloy steel falling under heading no.7206.90 and 7207.90 and Hot rerolled products of non alloy steel of headings nos. 7211.11, 7211.19, 7211.30, 7211.52, 7211.59, 7211.60, 7211.92, 7211.99, 7213.90, 7214.90, 7215.90, 7216.10 and 7216.90. In this case the duty is charged at a flat rate depending upon the capacity of plant and machinery. 3. Self Removal Procedure – Applicable to all other goods produced or manufactured within the country. Under this system, the assessee himself determines the duty liability on the goods he clears.

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CHAPTER –III: POWER OF GOVERNMENT TO EXEMPT DUTY OF EXCISE EXEMPTION FROM DUTY TARIFF RATE AND EFFECTIVE RATE OF DUTY

CETA/Customs Tariff prescribe the rate of duty for each Chapter head and sub-head This rate is called 'Tariff Rate' and the duty payable is 'Statutory Duty'. The rates are fixed by Parliament and changing these rates is time consuming. However, Government needs flexibility in operations of taxing statute. As the circumstances change, quick adoption to changing situations is required. CEA and Customs Act, have, therefore, granted powers to Central Government to modify rates as per requirements, by issuing a notification. The duty actually payable as per the notification (usually referred to as 'exemption notification') is called 'effective rate of duty.

Exempted from duty and chargeable to Nil rate of duty - If the tariff itself specified duty as ‘Nil’, the

goods nil chargeable to ‘Nil’ rate of duty. If the goods are exempt by way of a notification, they are called 'exempt from duty. Thus, there is difference between goods chargeable to 'Nil' rate of duty and goods 'exempt from duty'. - Arun Auto Spinning and Mfg’ .58 It may be noted that 'Nil' duty is still a duty. - CCE 59

v. Vazir Sultan Tobacco Co. Ltd .

Exemption does not erase duty - Excisable goods do not become non-excisable only because of

exemption given under an exemption notification.

Exempted goods means only those goods exempted under notification under sec – 5A -

Under Central Excise Act, exempted goods has special meaning. 'Exempted goods' means goods exempted by notification under section 5A. 'Exempted goods' are not same as 'goods cleared without payment f duty. Under Central Excise, 'exemption' means exemption by notifica-5.A of CEA. Similarly, 'Nil' duty means that duty payable is ‘Nil’ as specified in tariff.

Goods exported under bond are not 'exempted goods'

Rule 19(1) of Central Excise Rules states that material may be exported without payment of duty from factories of producer or manufacturer by removing under bond. Thus, the goods are cleared ‘without payment of duty’. They are not 'exempted goods’. 60

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CCE 1990 (48) ELT 543 (CEGAT) AIR 1996 SC 3025 -- 1996 AIR SCW 1353 -= 13 RUT 291 = 83 FIT 3 (1996) SCC 434 (SC 3 member bench) Ministry of 1aw Advice dated 29.10.1974 - confirmed and circulated vide CFE&C circular No 278/112/ 96-CX dated 11.12.1996


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Goods removed under CE (Removal of Goods at Concessional Rate of Duty) Rules, 2001 are 'exempted' goods - Goods removed under earlier Chapter X procedure of central Excise provided for

'remission' of duty, which is different from 'exemption. Hence, it was held that goods cleared under Chapter X procedure arc not ‘exempted goods’. However, corresponding new central Excise (Removal of Goods at Concessional Rate of Duty for manufacture of Excisable Goods) Rules provide for 'exemption' for duty and not 'remission'. Hence, goods removed under the new rules will be 'exempted goods'.

Dutiable and non-dutiable goods- Excisable goods are all those goods specified in the Central Excise

Tariff Act, 1985. Excisable goods may be dutiable or non-dutiable. Dutiable goods are those goods, which attract duty as per the Tariff. Non-dutiable goods are 'excisable goods' on which no duty is payable, either because of 'Nil' rate of duty or because of exemption. Thus, all dutiable goods are Excisable goods but all excisable goods need not be dutiable goods. Even where goods arc non-dutiable, Excise provisions are applicable, even if no duty is payable. However, when goods are non-excisable, (as they are not mentioned in the tariff at all), Excise Rules and regulations are not applicable.

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In AV Fernandez v. State of Kerala, it was held that there is distinction between exemption from tax and non-liability to tax of a commodity.

Meaning of ‘goods on which appropriate duty has been paid’

If an exemption notification uses the words ‘on which appropriate duty has already been paid’, it means that on which excise duty has, as a matter of fact, been paid and has been paid at 'appropriate' or correct rate. Thus, it cannot cover goods on which in fact, no duty has been paid. CCE v. Dhiren Chemical Industries.62 In State of Punjab v. Perfect Synthetics,63 it has been held that ‘subject to tax’ does not mean 'suffered the tax'. An article is 'subjected to tax' even it an exemption has been granted. However, if no tax is leviable, are not subjected to tax and hence there is no question of such goods having ‘suffered tax’ - Gannon Dunkerley and Co v. State of Rajasthan.64

EXEMPTION FROM DUTY BY A NOTIFICATION

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(1957) 8 STC 561 (SC 5 member bench)

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2002(139) ELT 3 =2001 AIR SCW 5073 =2002(2) SCC 127 = 47 RLT 881 = 139 ELT 3 = 254 ITR 554 = 126 STC 122 (SC 5 member bench judgment) 63 (2008) 13 ELT 550 (SC) 64

(1997)229 1993 AIR SCW 2621 = (1993) 1 SCC 364 88 STC 204 (SC 5 member Constitution bench).


Central Excise Rules grant exemption from duty if goods arc exported under bond, except exports to Nepal and Bhutan. Similarly, goods manufactured in Special Economic Zone (SEZ) are ‘excluded excisable goods’ and hence duty of excise is leviable on goods manufactured in Special Economic Zone. Sec- 5A(1) of CEA authorizes Central Government to exempt the excisable goods, (a) generally (b)either absolutely or subject to such conditions (to be fulfilled before or after removal), (c) from whole or any part of excise duty leviable. Such exemption should be in public interest and it should be by way of notification published in Official Gazette – similar provision n section 25 (1) of Customs Act in respect of custom duty. The exemption notification issued u/s- 5A is not applicable in respect of DTA clearances by EOU/SEZ unit, unless specifically provided under notification.65 Unless specified, such exemption notification does not apply to goods manufactured by SEZ and EOU units [proviso to section – 5A(1)]. The notification becomes effective on the date it is issued for publication in Gazette [Section – 5A(5)(a)].

Notification applies to only duties levied under Central Excise Act – Exemption notification issued

under section – 5A 66 without reference to any other statute applies only to basic duty and not to duty imposed under any other statute (additional duty or special duty in this case).

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Exemption notification has statutory force - All exemption notifications are issued under delegated

legislative Power and halve full statutory force and validity. Since it has a legislative character question of hardship to anyone is irrelevant. Persons affected are not entitled to opportunity of heating before issue of notification.

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Rule prevails over a notification - in Amrit Paper v. CCE , It has been held that a notification cannot

have primacy over statutory rules.

Public Interest is essential - The exemption notification can be issued only in public interest. Public

interest means greatest happiness of greatest number. It is not necessary to disclose the exact nature of public interest of each notification.

Method or form of granting exemption 65 66 67 68

Proviso to sec – 5A(1) that time rule – 8 (1) U.O.I v. Modi rubbe Limited (1986) 4 SCC 66 = 1986(25) ELT 849 (SC 3 member bench) (2006) 4 STT 329 = 200 ELT 365 (SC)

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The typical notification granting exemption reads as follows – “In exercise of the powers conferred by sub-section (I) of section 5A of the Central Excise Act,1944 (1 of 1944), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods falling under heading No of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) from whole of the duty of excise leviable thereon under section – 3 of Central Excise Act, 1944 (1 of 1944)." In case of partial exemption, the wording is "exempts, from so much of the duty of excise leviable thereon which is specified in the said schedule, as is in excess of the amount calculated at the rate of . . . per cent ad valorem." or "as is in excess of the amount calculated at the rate of Rs per Ton" and so on. The rare at which duty is actually payable is called 'effective rate'.

Form or Method of exemption may be different - The Tariff Rate may be prescribed ad valorem or

specific i.e. based on weight, length, area, volume or other measure. Section - 5A(3) provides that partial exemption under section 5A(1) or 5A(2) can be granted by providing exemption from duty at a rate expressed in form or method different from which statutory duty is leviable, however, the duty prescribed by an exemption notification can never exceed the Statutory Duty e.g. duty on an item may be prescribed in tariff as 15% ad valorem, but the exemption notification may exempt the duty which is in excess of (say) Rs. 500 per ton. Thus, effective duty is Rs. 500 per ton. This duty cannot exceed the statutory duty, which is 15% in this example. Here, tariff rate is prescribed as a percentage of value, while effective duty is on the basis of weight. This is specially permitted vide section 5A(3) of CEA [parallel section 25(3) of Customs Act].

Notifications to be placed before Parliament - The exemption notifications issued are required to be

published in Official Gazette. The notifications should be placed before each House of Parliament, for a period of at least 30 days (comprising of one or more successive sessions), as soon as possible after the notification is issued. Parliament may modify the but such modification or annulment will not affect the validity of anything already done under the notification. [section - 38(2) of Central Excise Act and section 159 of Customs Act]. Effective date of a notification - A notification has to be published in Official Gazette, which is then

made available to public. Thus, there is time gap between 'issue' of a notification and its publication in Official Gazette. It has been provided that a customs or Central Excise notification be, effective on the date it is 'issued'. [Notification is 'issued' when it is signed by authorised officer and sent for publication in Official Gazette]. In order to ensure that public is aware of the change, it has been provided that the notification will be published and made available for sale by Director of Publicity & Public Relations,

15


16

Central Excise & Customs, on the day die notification is 'issued' [section 5A(5) of CEA and section 25(4) of Customs Act]. Thus, an exemption notification will be valid on the day it is 'issued', though it may be published in Official Gazette later. However, when there is no specific provision in Act, a notification becomes effective on the day it is published in Official Gazette: It is immaterial when the gazette notification was available for sale to public.

Exemption to an article does not mean exemption to its components/parts -

It may be noted that

exemption to an article does not mean exemption to its parts. 'Thus, assume that a manufacturer manufactures some parts for an article which is exempt under an exemption notification. In such case, if the parts manufactured are 'goods' i.e. marketable, the manufacturer will have to pay duty on parts though the final article is exempt from duty view confirmed in CCE v. Tube Investment of India Ltd .69 The exception is that if exemption is to a 'part', it will be available to its part also, as part of a part is part of whole.

EXEMPTION OPTIONAL BUT ABSOLUTE EXEMPTION COMPULSORY

Section 5(1) (A) inserted w.e.f. 13-5-2005 which reads as follows, for the removal of doubts, it is hereby declared that where as .exemption has been granted of any excisable goods from the whole of duty ofexcise leviable thereon has been granted an respect absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods'. Thus, if a notification grants unconditional exemption to certain goods, assessee cannot pay excise duty on such goods. In Orient Weaving Mills v. U.O.I. 70 (SC 5 member bench) it has been held that the exemption notifications become part of the Act itself.

When payment of duty could have been beneficial - A manufacturer may like to pay duty on his goods

e\ en if the goads are exempt, if the buyer intends to avail Cenvat on the inputs supplied by manufacturer. If manufacturer does not pay duty, he cannot avail of Cenvat credit on inputs used by him which is ultimately a loss w the buyer as chain of Cenvat is broken.

69

70

2000(118) ELT 432 (CEGAT).

AIR 1963 SC 98 = 1978 (2) ELT J. 311


Assessee may also like to pay duty on exported goods and attempt to repay the same on condition that it is not to utilised Cenvat credit on capital goods, which otherwise. This will enable him enable him to pay excise duty However, this is not permissible, al least w.e.f. 13-5-2005.

Conditional exemption at option of assessee

Section 5A(1 A) as inserted 13-5-2005 applies only in cases where exemption u/s 5A(1) has been granted 'absolutely' i.e. unconditionally. Some exceptions are subject to some conditions e.g. following Central Excise (Removal of Goods at 71

Concession Rate of Duty for Manufacture of Excisable Goods) Rules I, procedure or not claiming Cenvat etc. In such cases, the assessee may or I nay not avail of the concession or exemption. If exemption is conditional, it is option of assesses. He may not follow the condition pre-, scribed and hence may pay duty. e.g. a notification says : "The goods are exempt from duty, provided that no credit of duty paid on the inputs, used in the manufacture of goods, has been taken under Cenvat Credit Rules". Thus, exemption is available if Cenvat credit is not availed. Hence, if Cenvat is availed on inputs, automatically, the exemption is not available and assessee can (in fact, has to) pay duty. 72 In Remedies (India) Pharmaceuticals v. CCE, 73 it was held that benefit of a (conditional) exemption cannot be thrust upon an unwilling manufacturer [the words 'conditional' are not used in the order].

Option to assessee if two exemption notifications available- When there are two provisions under

which an assessee could claim some benefit, it is for the assessee to choose one. 74 Where there are two exemption notifications that cover the goods in question, assessee is entitled to the benefit of that exemption notification which gives him greater relief, regardless of the fact that notification is general in its terms and the other notification is more specific to the goods 75. Even if one exemption notification is general and other notification is especial one can opt either, which is beneficial to him.76

71 72

73 74 75 76

Earlier chapter - 10 Chandigarh Commissioner Trade Notice No. 59-CE/91 dated 30-7-1991 - (1991) 55 ELT T49.

1998(101) ELT 344 (CEGAT) CIT v. Mahendra Mills 2000 AIR SCW 1016 =AIR 2000 SC 1960 = 243 FIR 56 = 109 Taxman 225 (SC) HCL Ltd. v. CCE 2001(130) ELT 405 = 76 ECC 11 (SC 3 member bench order) CCE v. Maruti Foam 1996(85) followed in CCE v. Bharat Seats 1999(108) ELT 847 (CEGAT).

17


OTHER PROVISIONS IN RESPECT OF EXEMPTION –

Other provisions in respect of exemption notification are as follows. Exemption in exceptional circumstances - General exemptions from duty can be granted under section

5A(1) A Central Excise and section 25(1) of Customs Act, by issuing a notification. However, section 5 A(2) Central Government to grant exemption, in public interest, in exceptional circumstances by a special order. The exceptional circumstances should be specified in the order (it is not necessary to publish the order in Official Gazelle) similar provision in section 25(2) of Customs Act. This is ad hoc exemption and can be granted even retrospectively. CBE&C circular no. 12/97 – Cus dated -12-5-1997. Following articles will be considered for granting the ad hoc exemption. MF(DR) circular N04 50/ 2003Cus dated 12-6-2003 •

Import of secret goods by Government

•

Defence need relating o military hardware and software or for R&D units

•

Import by government organisations engaged in security operations like Special Protection Groups (SPG), Central Police Organizations or State Police Organisations for antisubversion, anti – terrorism and intelligence works.

•

Goods meant for providing relief and rehabilitation under unforeseen and exceptional circumstances such as flood, earthquake, epidemic etc.

•

Imports by registered charitable institution, who receive goods as donations or gifts for charitable purposes. It should provide service free or ‘no profit no loss’ basis. They have to give undertaking to fulfill prescribed conditions for availing exemption. Goods imported cannot be sold o gifted.

Monitoring of ad hoc exemption will be done by jurisdictional Commissioner.

77

Retrospective insertion of clarification to exempt notification

An exemption notification cannot be amended with retrospective effect. However, sometimes it is found that there is some drafting mistake or ambiguity in (a) the general exemption notification issued u/s – 5A(1) of CEA or 25(1) of Custom Act or (b) Special exemption order issued under section – 5A(2) of CEA or section – 25(2) of Customs Act. Sometimes, assessee gets unintended benefit while in some case even intended benefit cannot be obtained due to drafting error in the exemption notification or exemption

77

Report should be sent to him.

18


19

order. To overcome this problem, section 5A(2A) of CEA and section – 25(2A) of Customs Act have been inserted w.e.f. 11-5-2002. As per these inserted sections, Central Government, for the purpose of clarifying the scope or applicability of exemption notification or exemption order, may insert an explanation to the exemption notification or order within one year of such notification or order. Such explanation to an exemption notification will have retrospective effect from date of exemption notification. Such Explanation can be inserted in exemption notification only within one year of date of issue of notification and not thereafter.

Burden of proof on party claiming exemption

A party claiming exemption has to prove that he is eligible for exemption contained in the notification, i.e. burden of proof is on him. 78

Exemption can be availed later by way of refund claim/appeal

It is not essential that exemption has to be claimed before clearance of goods. It is possible to avail exemption by making a refund claim later, even if classification or assessment is done at higher rate.

79

Even if an applicant does not claim benefit under a particular exemption notification at initial stage, he is not debarred, prohibited o estopped from claiming such benefit at a late stage. 80

No res judicata or estoppel in taxation – There is no ‘res judicata’ or ‘estoppel’ in taxation mattes. Either

assessee or department can change its stand/views about taxability and demand can be raised or refund/exemption can be claimed within time limit provided by law.

81

Exemption when required certificate/permission produced later - ONGC Ltd. v CC , appellant had

applied for essentiality certificate but it \vas issued later. It was held that the certificate is valid till final assessment order is passed and appellant is entitled to benefit of exemption notification. In Hindustan Machine Tools Ltd. v. CC ,82 exemption from duty was subject to production of a certificate from specified authorities recommending the grant of exemption on the basis of their satisfaction that parts are required for specified purpose. Though assessee applied for certificate the same was not

78

Mysore Metal Industries v. CC, Bombay 1988 (36) ELT 369 (SC) = 1988 (17) ECR 636 Bharat Earth Movers ltd v. Collector 1991 (52) ELT 600 (CEGAT) also in CCE v. ITC Ltd 1993 (67) ELT 852 (CEGAT) 80 Share Medical Care v. UOI 2007 (209) ELT 321 (SC) 81 2006 (201) ELT 321 (SC) 82 1990 (46) ELT 434 79


obtained before clearance of imported (roods. It was subsequently produced and it was held that refund can be granted in such a case.

Exemption for past general practice - At times, the assessees and excise department treat a provision of

excise law or classification/valuation of particular goods in a particular way. Duty is levied or exempted accordingly. However, the settled and mutually accepted position of duty liability may get disturbed for some reason like (a) Supreme Court/High Court/Tribunal decision classification or mode of valuation or any other decision having effect on duty liability (b) Rethinking of excise department regarding correct legal interpretation of tariff item or interpretation of a notification which might affect duty liability of particular excisable goods (c) any other reason where earlier general understanding about duty pa‘ able on particular goods may be found to be incorrect. If it is found that higher duty was legally recoverable, the same can be recovered for past period also within the limitations of law. However, this might seriously affect industries as they had not considered this unexpected burden while deciding their price structure. Some units may even become bankrupt or companies may go in liquidation. Hence, section 11 C of CEA provides that if (a) there was a generally prevalent practice of levy or nunlevy of any excisable goods and (h) such goods were actually liable for duty at higher rates; Central Government may, by notification in Official Gazette, direct that such excess duty payable, need not be 83

paid.

Refund if duty was paid - After the notification is issued, if a particular assessee had paid duty at higher

rate than prescribed in notification issued under section 1 L. he shall be en-to apply for refund of such extra duty paid. However, this is subject to section 11B(2), which states that no refund will be granted if incidence of duty has been passed on to customer. Application for refund should be made within six months from issue of the notification. Earlier also, in CCE v. Mahavir Spinning Mills Ltd ,84 it was held that those assessees who had paid duty prior to issue of notification issued under section 11C are eligible to get refund.

EXEMPTION TO GOODS BY NEW UNITS IN BACKWARD AREA- In order to encourage

development of backward areas, excise duty exemption has been granted to goods manufactured by new units (or existing units undertaking substantial expansion). The areas are as follows - (a) North Eastern Region and Sikkim Notification No. 20/2007-CE dated 25-4-2007 (Earlier No. No. 32/1999-CE(NT) 83

84

similar provision u/s 28A of Customs Act in respect of Customs duty.

1988 (33) ELT 115 (CEGAT)

20


21

dated 8-74999, No, 33/1999t CE dated 8-7-1999, 56/1003-CE dated 25-6-2003 and 71/2003-CE dated 97-2004) (b) Kutch district of Gujarat No. 39/2001-CE dated 31-1-7001 (C) State of Ja mmu and Kashmir 56/ 2002-CE and 57/2002-CE both dated 14-11-7002 (d) Himachal Pradesh 49/2003 CE dated 10-6-2003 (e) Uttaranchal - 50/2003-CE dated 10-6-2003.

EXEMPTION WHEN DEPARTMENT IS INACTIVE

Sometimes, exemption or concession is subject to production of a certificate or permission from some authority. The Assessee can only make application for getting such certificate or application. However, actual getting permission is not in his powers. In such cases, it has been held that exemption/concession is available even if such certificate/permission is submitted subsequently. This would be so even if the exemption notification specifics that. such permission/certificate is a pre-r\condition for granting the exemption/concession. In CC V. Tullow India Operations Ltd 2005. C 1 89) 40 I (SC), exemption was subject to production of essentiality certificate from Director General of Hydrocarbons at the time of import. The authority did not issue the certificate in time. It was held that exemption cannot be denied merely because certificates were required to be produced at the time of importation. In CCE v. MPV & Engg Industries, 85 it was also held that assessees who are eligible for exemption should not be deprived of benefit merely because authorities concerned took their own time n disposing of the application.

Exemption cannot be denied on account of illegal act of department authorities – In Kuil Fireworks

Industries v. CCE,86 assessee cannot be made suffer on account of illegal act of departmental authorities. In Delta Industries v. CCE,87 refund was ordered when assessee could not avail exemption as department did not allow him to avail the benefit.

STRICT CONSTRUCTION OF XEMPTION NOTIFICATION

An exemption notification should be construed strictly. There is no scope for any intendment. 88 In this case, it was reaffirmed that exemption notification has to be strictly construed and that no extended

85 86 87 88

(2003) 5 SCC333 = 153 ELT 485 (SC) = 2003 AIR SCW 2108 1997(95) ELT 3 (SC) = 1997 AIR SCW 3663 = AIR 1997 SC 3559 2001(134) ELT 112 (CEGAT)

Hemraj Gordhandas v. H. H. Da ve, CCE 1970 SC 755 = 1978 (2) ELT (J350) (SC) = 1969 2 SCR 253 (SC 5 member Constitution Bench) confirmed in Rajasthan Spg. And Wvb Mills Ltd. V. CCE 1995 (77) ELT 474 (SC) – 1995 (58) ECR 569 (SC) = AIR 1995 SC 1985 = (1995) 4 SCC 473 = 102 STC 476 (SC)


22

meaning can be given to exempted item to enlarge the scope of exemption granted by the notification. It was held that onus is on assessee to provide his eligibility for exemption. 89 Exemption notification has to be interpreted on its wordings. No words, not used in the notification, can be added.90

Exclusionary clause in exemption should be interpreted strictly

Sometimes, exemption notification gives exemption, but specifically excludes some articles from the 91

exemption, by way of an exclusionary clause. In Pappu Sweets v. Commissioner of Trade Tax, it was held that such exclusionary clause should be read rather strictly. Even if words used in exclusionary clause of an exemption notification have wide dictionary meaning or connotation, only that meaning should be given which would achieve rather frustrate the object of granting exemption and which does not lead to uncertainty or unintended results.

Purposive interpretation of exemption notification

Wordings in the exemption notification have to construed keeping in view the object and purpose of the exemption. In Oblium Electrical Industries P Ltd. V CCI ,92 it was held that an exemption notification cannot be read in narrow manner so as to defeat the object of the notification. 93

In CCE v. Acer India Ltd., following [principles were summarized for interpretation of taxing/ fiscal statute – a)

No one can be taxed by implication

b)

While construing a taxing statute, existing market practice can also be taken into consideration

c)

Provision enacted for benefit of assessee should be so construed which enables the assessee to get its benefit

d)

Even in taxation statute, principle of purposive construction will be adhered to when a literal meaning may lead to absurdity

89 90 91 92

same view in Grasim Industries Ltd. V. State of Madhya Pradesh, 1999 AIR SCW 4189 = AIR 2000 SC 66 = 1999(8) SCC 547 CCE v. Sunder Steels AIR 2005 SC 1307 = 181 ELT 154 (SC 3 member bench) 1998 AIR SCW 3170 = (1998) 7 SCC 228 = AIR 1998 SC 3247 = 178 ELT 48 = 11 STC 425 (SC 3 member bench)

94 ELT 449 (SC) = AIR 1997 SC 3467 + 1997 AI SCW 3557 + 1997(7) SCC 581 followed in KR Steel Union v. CC 2001 AIR SCW 1541 = 2001 (4) SCC 736 = 129 ELT 273 (SC 3 member bench) 93 (2004) 172 ELT 289 = (2004) * SCC 179 = Ai 2004 SC 4805 = 137 STC 596 = 2004 AIR SCW 5496 (SC 3 member bench )


Strict interpretation at first stage but not later stages

In Manglore Chemicals and fertilisers Ltd. V. Dy. CCT ,

94

hon. Supreme Court has held :- ‘when the

question is whether a subject falls in the notification or in the exemption clauses, the interpretation should be strict as it is in the nature of an exemption. But, once the ambiguity about applicability is lifted and it is held that the subject falls in the notification, then full play should be given to it and it calls for a wider and liberal construction. It will erroneous to attach equal importance to the non-observance of all conditions irrespective of the purpose they were intended to serve.’ In other words, while deciding whether the exemption is available o not, strict interpretation is preferred, but after it is decided that exemption is available, liberal construction adopted for interpretation of further clauses and benefit cannot be denied on mere technicalities. A distinction should be made between mattes of form and substance.

Department cannot challenge the certificate/clarification/license of prescribed authority

Once advance license is granted by licensing authority the customs authorities cannot refuse exemption on an allegation that there was misrepresentation.95 In Titan Medical System case96, it was held that even assuming that licensing authorities have wrongly accepted the statement of petitioner and granted him advance license, so long as license is valid and subsisting, import against advance license cannot be denied. Custom authorities cannot sit in appeal over decision of licensing authority.

Revenue cannot challenge declaration/statement given before other statutory authorities – Revenue

cannot challenge declaration/statement given before other statutory authorities.97

Promissory Estoppel in exemption notifications

Power to issue exemption implies power to amend the exemption or withdraw exemption. Thus, exemption granted by notification can be withdrawn or modified. However, some notification grant exemption for prescribed period e.g. new cement plants may be granted exemption for prescribed number of years. Some manufacturers may set up a plant based on such notification. In such cases, can the exemption be withdrawn before the prescribed period? Such withdrawal can be done only in exceptional circumstances. Otherwise, Government is bound by the promise, as per theory of ‘Promissory Estoppel’. 94

STC 234 = 55 ELT 437 = AIR 1992 SC 152 = 1992 Suppl (1) SCC 21 Titan Medical System v. CC 2003 (151) ELT 254 (SC) 96 Ibid 97 ITC Ltd. V. CCE 2004 AIR SCW 7208 = 64 RLT 341 = 171 ELT 433 (SC) 95

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Government cannot resile from its promise simply on ground of loss of revenue. This is principle of ‘promissory estoppel’.

24


25

CONCLUSION The Central Excise Tariff Act, 1985 prescribes rate of duty, which is called as Tariff Rate or statutory rate of Duty. Since this rate is fixed by an Act of the parliament, any change in the rate of duty upward or downward, which government may consider on any excisable goods to achieve varied socio economic objectives, shall require approval of parliament, by way of amendment in the Central Excise Tariff Act itself. Since this is not practically possible and is time taking exercise, Parliament has granted powers to the Central Government to reduce rate as per requirement, by issuing exemption notifications. From time to time, the Central Government issues exemption notification to amend or lower the rate of duty on excisable goods.

Such

notification

which

has

impact

of

reducing

rate

of

duty

payable

on

the

goods

manufactured/imported/exported are known as Tariff notification to distinguish it from other notifications (known as non-tariff notification) which is also issued by the Government for purposes, other than the impacting the rate of duty, as required under the provisions of Central Excise Act, 1944/Customs Act, 1962; and the Finance Act, 1994. If any exemption notification issued by government provides effective rate of duty as NIL, the goods are called “Exempted Goods”, whereas if the tariff rate itself provides “NIL” rate of duty, these are called “Chargeable to Nil rate of duty”.

The Section 5A of the Central Excise Act, 1944, deals with powers to grant exemption from payment of duty. There are two types of exemptions- One is general exemption and another one is ad-hoc exemption. The exemptions could be for whole or part of duty. Thus, by exemption notification, excisable goods could be made wholly or partly exempt from payment of duty. The government while granting exemption may also impose certain conditions for availing the duty exemption and conditions, if any, are required to be mentioned in the notification itself. The condition may be of the type which needs to be fulfilled either prior to removal of the goods from the factory or post after removal of excisable goods.

While general exemptions are issued by the Government in public interest by notification in the official gazette, the ad-hoc exemptions are issued in public interest, but under circumstances of exceptional nature and by issuing an order and such orders are not required to be published in the official Gazette. Ad-hoc exemptions orders are issued in rather exceptional circumstances. The Government has issued detailed guidelines for issuance of ad-hoc exemptions in Customs vide CBEC Instruction F. No. 460/04/2014 Cus-V, dated 19.08.2014. No separate guidelines have been issued in Central Excise and Service Tax


matters, but as per CBEC Circular issued by Central Excise wing, the guidelines issued by Customs wing are also applicable for issuance of adhoc exemption under Central Excise Act, 1944. The Section 5A (1) of the Central Excise Act, 1944 contains a proviso providing that “Unless specifically” provided in such notification, notification issued under Section 5A (1) shall not apply to excisable goods produced or manufactured in EOU, FTZ and SEZ (SEZ are now considered as deemed foreign territory and goods manufactured in SEZ are not subjected to levy of Central Excise duty under Central Excise Act, 1965), cleared for the home consumption. In other words, while calculating the central excise duty payable for the goods manufactured by EOUs and cleared in domestic tariff area (DTA), exemptions are to be applied only if the notification specifically provides that this will also apply in case of excisable goods cleared by EOU etc.

While granting exemption under Section 5A (1) or (2),or under section 25(1) or(2) of the Customs Act, the form and method ( ad valorem, specific etc. ) of duty exemption could be different than form of statutory duty. "Form or method", in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable. For example, even if when statutory duty is ad valorem, exemption can be granted based on weight, value or other factors. The only condition is that effective duty chargeable on such good should in no case exceed the statutory duty.

In Central Excise law, explanation has been added to Section 5(1) of the Central Excise Act, 1944 w.e.f. 13.05.2005. It provides that whenever exemption for duty of Central Excise has been granted absolutely, it must be availed of by the manufacturer and he cannot pay duty on such goods. The said explanation to the Section 5(1) of the Central Excise Act, 1944 reads as under :(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.

It must be borne in mind that in certain circumstances, assessee may prefer to pay duty instead of availing exemption. For example, if the duty is not payable on final product, the final product become costlier as CENVAT Credit chain is lost and manufacturer is not able to pass on the incidence of input credit duty to its buyer. Likewise buyer, if he is manufacturer, may not be able to avail CENVAT Credit, as he may not be having duty paid document. It may also be possible that „amount as provided in CENVAT Credit !

Rules may become due if the manufacturer is producing both dutiable & exempted products. Thus, in certain situation, assessee may prefer to pay duty instead of availing exemption. Thus in case of absolute

26


exemption on any excisable goods, availment of such exemption by the manufacturer shall be compulsory whereas in other cases of exemption, it would be optional for the assessee to avail or not avail benefit of exemption. No parallel provisions exist in the Customs Act as well as in Service Tax law.

A party claiming duty exemption has to prove that it is eligible for the duty exemption contained in the notification. Thus, the burden of proof is upon the person claiming the benefit of exemption notification.

As per provision contained in Sub-section (5) of Section 5A of the Central Excise Act, 1944, every notification issued under sub-section (1) or sub-section 2(A) shall come into force on the date of its issue by the Central Government for publication in the Official Gazette unless otherwise provided in the notification itself.

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BIBLIOGRAPHY

V.S. DATEY, TAXMANN’S INDIRECT TAXES, TAXMANN PUBLICATION

•

(P.) LTD., 24

TH

EDITION, 2010 PRINT

TAXMANN’S INDIRECT TAXES AS AMENDED BY FINANCE ACT 2012,

•

TH

TAXMANN PUBLICATION (P.) LTD., 9

EDITION,

V.S. KRISHNAN, REFORMS, CHALLENGE AND RESPONSE,

•

ABHINAV PUBLICATION, 2006

•

MADHUKAR N HIREGANGE, VISHAL JAIN AND ROOPA NAYAK, STUDENT’S HANDBOOK ON INDIRECT TAXES, NOTION PRESS PUBLICATION, 2015

WEBSITES •

https://indiankanoon.org/doc/26807273/

•

http://www.lawteacher.net/search.php?cx=017611980267021692879%3Akm6yvozpjgu&co f=FORID%3A11&q=power+of+central+govenment+to+exempt+duty+of+excise&sa=

•

http://www.servicetax.com/central.php

•

http://www.cbec.gov.in/htdocs-cbec/excise/cx-act/cx-act-ch2

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Tax II Project

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