Excise
exemptions to Small Scale Industries
Since Excise
is a duty on manufacture, it is payable even by a small unit manufacturing the goods.
However, it is Governments policy to encourage growth of small units. Moreover, it
is administratively inconvenient and costly to collect revenue from numerous small units.
The Govt. has therefore, given various concessions to small scale industries (SSI). The
most important notification giving these concessions is notification No. 8/2000 and 9/2000
dated 1-3-2000. SSI units whose turnover is less than Rs. 3 crores are eligible for the
concessions. If SSI unit does not avail Cenvat on inputs, turnover up to Rs 100 lakhs is
fully exempt. (The exemption limit was Rs 50 lakhs and 5% duty was payable for next 50
lakhs, up to year 1999-2000). If SSI unit avails Cenvat on inputs, it has to pay 60% of
normal duty upto turnover of Rs 100 lakhs and normal duty for subsequent clearances. (The
duty payable till 1999-2000 was 60% for first 50 lakhs and 80% for next 50 lakhs)
Exemption
notification No 8/2000 is applicable when the manufacturer intends to avail exemption
without availing Cenvat credit. This notification also permits payment of full normal duty
without availing any exemption. The notification No. 9/2000 is applicable when assessee
intends to avail Cenvat credit on inputs.
Goods not
Eligible for SSI concession
Many of goods
manufactured by SSI are eligible for the concession. However, some items are not eligible
(some of the items not eligible for SSI exemption are eligible for exemption under
different notification. Some are not exempt at all). Thus, SSI exemption is available only
if the item is covered in this notification.
Broadly,
items generally manufactured by SSI (except in tobacco, matches and textile sector) are
eligible for SSI exemption. Some items like pan masala, matches, watches, some textile
products, tobacco products, etc. are specifically excluded, even when these can be
manufactured by SSI. Some items like automobiles, primary iron and steel etc. are not
eligible, but anyway, these are beyond capacity of SSI unit to manufacture.
Goods with
others brand name not eligible - Goods
manufactured by an SSI unit with brand name of others is not eligible for SSI concession,
unless goods are manufactured in a rural area.
SSI units
eligible for SSI concession
All
industries irrespective of their investment or number of employees are eligible for
concession. In fact, even a large industry will be eligible for the concession if its
annual turnover is less than Rs. 3 crores. The SSI unit need not be registered with any
authority.
Exemption
available only if turnover in previous year was less than Rs 3 crores - A unit
is entitled for exemption only if its turnover in previous year was less than Rs. 3
crores. Units whose turnover was over Rs. 3 crores in 1999-2000 are not eligible to any
SSI concession in 2000-01. They have to pay full normal duty. Similarly, goods
manufactured with other's brand name are not eligible.
Clubbing of
turnover - (a) If the manufacturer has more than one factories (even at different places),
the turnover of all factories (belonging to same manufacturer) have to be clubbed together
for calculating the SSI exemption limits of Rs 100 or 300 lakhs. (b) It is also possible
that more than one manufacturers may clear the goods from the same factory e.g. part of
factory may be used by one manufacturer and another part of same factory may be used by
another manufacturer. In such cases, all clearances from the factory has to be considered
even if the clearance is of different manufacturers for calculating the SSI exemption
limits of 100 or 300 lakhs. (c) Some times, a manufacturer may use the factory for part of
the year and then another manufacturer may use the same factory for remaining part of the
year. In such cases, the turnover of different manufacturers has to be clubbed for
calculating the SSI exemption limits of 100 or 300 lakhs., if it is from the same factory.
Choice of
various types of exemption - SSI units have been given three types of exemptions -
(a) Unit can
avail full exemption upto Rs 100 lakhs and pay normal duty thereafter. Such units can
avail Cenvat credit on inputs only after reaching turnover of Rs 100 lakhs in the
financial year. [The full exemption limit of Rs 50 lakhs was increased to Rs 100 lakhs
w.e.f. 1-9-2000].
(b) Unit
intending to avail Cenvat credit on inputs on all its turnover. They have to pay 60% duty
for first 100 lakhs and 100% duty for subsequent clearances
(c) Units can
also pay full 100% duty and avail Cenvat credit
When second /
third option suitable - Option of payment of duty may be suitable in following cases - (a)
When buyer intends to claim Cenvat credit. In such cases, the effective cost will be lower
as SSI unit can claim Cenvat on inputs (b) When SSI unit intends to export the products
and has huge balance in Cenvat credit account. In such cases, he can pay duty and claim
rebate after export of goods. Otherwise, the balance may remain unutilised, as there is no
provision to get refund of balance lying in credit in Cenvat Credit account.
Option must
be indicated, if SSI unit intends to avail Cenvat credit - The first option, i.e. Nil duty
upto Rs 100 lakhs and normal duty for subsequent clearances is automatic. However, if
assessee wants to avail second or third option (i.e. pay 60% / 100% duty), he must inform
option to department. He should inform in writing to Assistant Commissioner with a copy to
Superintendent of Central Excise.
Cenvat to be
reversed if unit decides to opt for exemption - If the unit was availing Cenvat credit
prior to 31st March, it will have to pay an amount equivalent to Cenvat credit allowed to
him on the inputs lying in stock or used in finished excisable goods lying in stock as on
1st April. If any Cenvat credit on inputs is balance on 31st March, it will lapse on 1st
April [Rule 57AG(2) - earlier rule 57H(7)].
Cenvat on
stock when unit decides to start availing Cenvat credit - The SSI unit can decide to start
availing and utilising Cenvat on inputs during middle of the year. When it decides to
start availing Cenvat on inputs, it should do following - (a) Submit a letter that it
intends to avail Cenvat on inputs lying in stock or contained in finished products on date
of declaration. (c) Submit a statement giving stock of inputs lying in stock on date of
declaration and duty paid on such stock. [These are not legally prescribed conditions, but
it is highly advisable to follow them].
Turnover from
1st April to be considered even if option availed from middle of year - Choice of option
of availing benefit of SSI exemption notification of paying 60% duty and availing Cenvat
on inputs, can be made any time during the year. However, once it makes a choice, the
option cannot be changed during the year under any circumstances. The SSI unit can change
the option only from 1st April next year. Even when the option is made in middle of the
year, all turnover from 1st April onwards will be considered for calculating the limit of
Rs 100 lakhs.
Simultaneous
SSI exemption and Cenvat - Some times, a
manufacturer wants to avail Cenvat on some products and exemption on some other products -
e.g. * he may be manufactures goods under his own brand name as well as others brand
name * He may be manufacturing some articles where buyers require Cenvat while some other
products where buyer does not want to avail Cenvat. In such cases, he will have to pay
duty on some goods and avail exemption on other goods. This is permissible as per CEGAT
decisions, but not permissible as per Board circulars.
Excluded
turnover for SSI exemption limit - While
calculating turnover of Rs. 100/300 lakhs, some of turnover of SSI is not to be
considered, as explained below.
Export
turnover to be excluded - The limit of Rs 100 lakhs and 300 lakhs are of clearance for
home consumption, i.e. within India. Export turnover should not be considered for the
purpose of calculating the turnover of 100 and 300 lakhs. Exports to Nepal and Bhutan
cannot be excluded, i.e. export turnover to Nepal and Bhutan will have to be added while
calculating limit of Rs 100 and 300 lakhs. It will be treated as 'clearance for home
consumption', even if actually it is 'export'.
Export under
bond through merchant exporter to be excluded - If the exports are under bond without
payment of duty through an export house, these will not be considered for SSI exemption
limit i.e. it will be excluded for calculating exempted turnover. This is because, in such
case, the clearance is not for 'home consumption'.
Turnover of
exempted goods or goods with Nil rate of duty to be excluded - While calculating the limit
of Rs 100 or 300 lakhs, the clearances of goods chargeable to nil rate of duty or which
are exempt from duty under any other notification will not be considered.
Goods
manufactured with others brand name - A SSI unit can manufacture goods with brand
name belonging to others. Such goods are not exempt from duty and full duty is payable on
such goods. This turnover has to be ignored for calculating SSI exemption limits.
Intermediate
products - Value of intermediate products manufactured while producing final products
which are eligible for SSI exemption cannot be considered for calculating limits of Rs 100
or 300 lakhs, if both intermediate product and final product are eligible for SSI
concession. Such intermediate product is fully exempt from duty. However, if final product
is exempt under any other notification, the value of intermediate products will have to be
considered.
Some Job work
to be excluded - Some type of job work is exempt from excise duty e.g. (a) Job work done after getting the material under
Cenvat rule 57AC(5) (earlier 57F(4)) - in respect of inputs, if the supplier of inputs
gives a declaration as required under notification No. 214/86 (b) Job work of test, repairs, reconditioning etc.
as this does not amount to manufacture i.e. where new and identifiable product
does not emerge (c) Job work for another SSI
unit who is eligible for SSI exemption and who sends material for job work after filing
declarations as required under notifications 83/94 and 84/94. This turnover is not to be
considered.
Inputs
brought by assessee and cleared as such not to be considered - A unit can clear inputs as
such on payment of duty under rule 57AB(1)(b) - earlier 57F(1)(ii). This turnover is not to be considered for
calculating clearances of Rs. 100/300 lakhs - Board circular No. 263/30/88-CX.8 dated
27-10-88 quoted and matter remanded in Essee Metal
Containers (P.) Ltd. v. CCE - 1993 (63) ELT
331 (CEGAT).
Strips of
plastics used within factory - Clearance of strips of plastics used within factory of
production for weaving of fabrics or manufacture of sacks or bags made of polymers of
ethylene or propylene are exempt.
Goods
manufactured without aid of power - Some
goods are exempt if no process in or in relation to manufacture of these goods is ordinarily carried on with aid of power. Some of
these are mentioned in CETA itself and some in a Notification No. 167/86 dated 1-3-86.
Sending
material for job work by exempt SSI unit - SSI unit
can send his raw materials or semi -finished material to another unit for job work. Such
another unit can carry out job work and return to SSI unit without payment of duty. The
SSI unit can do further processing on these inputs and clear his final product without
duty if his total turnover is below Rs. 100 lakhs.
The SSI unit has to file declaration with Assistant Commissioner for this purpose. The job worker may be a small unit or large unit.
The job worker does not have to pay duty if the SSI unit sending goods for job work
follows prescribed procedure. - refer notification No 83/94 and 84/94 dated 11.4.1994.
Small units
Exempt from registration - Very small
units, having turnover below Rs. 100 lakhs, which are exempt from duty, are also exempt
from provisions of registering their unit with excise authorities. - Notification No.
22/98-CE(NT) dated 4.6.1998.
These small
units, which are exempt from registration, do not have to follow any other excise
formality. However, they have to maintain their own records of manufacture and clearance,
to prove that their turnover is less than Rs. 100 lakhs per year.
SSI units
whose turnover over prescribed limit have to file declaration - Exempted units whose
turnover is more than prescribed limit (called 'specified limit') have to file a
declaration in prescribed form with Assistant Commissioner, Central Excise and obtain a
dated acknowledgement. Such declaration has to be filed only once in lifetime of the
assessee and not every year. The 'specified
limit' is defined as Rs 10 lakhs below exemption limit e.g. if exemption limit is Rs 100
lakhs, the 'specified limit' is Rs 90 lakhs, i.e. declaration has to be filed by units
whose turnover exceeded Rs 90 lakhs. Small units whose turnover is below 'specified limit'
per annum, do not have to file any declaration at all.
Visit of
officers only with prior approval - Excise
inspectors, preventive parties and audit parties can visit SSI unit only with specific
permission of Assistant Commissioner and for a specific purpose. They have to enter
relevant particulars in Visitors book maintained by registered person - CBE&C Circular No. 19/92-Cx.6 dated 18-12-1992. -
similar earlier telex F No 233/17/86-CX dated 10.3.1986.
Audit of SSI
unit only once in two years - Audit of
SSI units should be done only once in two years - CBE&C circular No 395/28/98-CX dated
2.6.1998.
Job work under
Central Excise
It is common
for Industries to get some processing done from outside on job work basis. Notification No. 214/86 dated
25-3-86 defines that Job Work means processing or working upon of raw materials or
semi-finished goods supplied to job worker, so as to complete a part or whole of the
process resulting in the manufacture or finishing of an article or any operation which is
essential for the aforesaid process. Thus, job work is possible even if it results in
manufacture of an article.
Who can send
the material for job work - The
manufacturer can send inputs for job work. Following are eligible to send materials for
job work (a) Manufacturers (b) Exporters (c) Units in EPZ, EOU, EHTP & STP (d) Who are
supplying final product to United Nations or international organisation for their official
use or to project funded by them.
After the job
work, the material must be returned to person who had sent it for job work. The person who
had sent the material, can either use it for further manufacture or clear the product (as
received from the job worker). He can clear the product received from job worker without
any further processing (a) On paying duty (b) Export under bond (c) clear to EPZ, EOU,
EHTP or STP unit without payment of duty (d) Clearance to UN or international organisation
or a project funded by them.
Duty
liability of goods manufactured under job work - Since excise
duty is on manufacture, duty liability arises only when the goods are
manufactured during job work. Thus, if an item is only repaired or reconditioned, no duty
liability arises as no new product emerges. Similarly, if some operation is carried out
which does not amount to manufacture, there is no duty liability. However, if goods are
manufactured during job work, excise liability will
arise, as duty is on manufacture and who
has supplied the raw material is immaterial.
No duty
liability will arise if the operation does not result in a new product, or the product
emerging after job work is not finished product.
Valuation for
Job Work - Once it is
established that duty liability has arisen, it has to be determined what is the assessable value of the product for purpose
of determining excise duty. It has been held by Supreme Court in the case of Ujagar Prints v. UOI that value
for this purpose means cost of material supplied to the job worker plus job work charges
of the job worker, plus profit of job worker. [Profit
of trader/supplier of raw material is not to be taken into account.] This is because
the excise duty is on goods and who is the
supplier or raw material is irrelevant.
Exemption for
CENVAT items received for job work - Payment of
duty on material cost plus job work charges will create a very big excise liability which
will seriously hamper job work and hence exemption is given in many of the cases for job
work. Material received by a manufacturer under CENVAT can be sent to a job worker for
processing and can be brought back by the manufacturer for further processing. In such
cases, there is no duty liability on the job worker and he is exempted from the same.
Notification No. 214/86 dated 25-3-1986 has been issued for this purpose.
Branded Goods
and SSI
Some large
units get their goods manufactured from small unit under their brand name or trade name.
For example, Bata gets many of their Chappals
made from small units. Similarly, Bajaj Electricals /Philips India etc. get many
electrical goods made from small units with Bajaj/Philips brand name. In such cases, the
small unit will not be eligible for excise exemption. However, if the small unit
manufactures goods under his own brand name, SSI exemption is available. If he manufactures under any other
brand name, SSI exemption is not available.
Provisions in
respect of brand name - Brand name or
trade name means any name or mark such as symbol, monogram, label, signature, or invented
word or writing which is used in relation to the goods for the purpose of indicating, or
so as to indicate a connection in the course of trade between such goods and some person
using such name or mark. The name or mark may or may not indicate identity of that person.
The brand name or mark or trade name may or may not
be registered. [Definition as per SSI exemption notifications]. Thus, the definition
is very wide. Even name of person who markets the goods, if used on the product, may
attract the provision, as such name or mark indicates the connection between the goods and
person using that name or mark.
Provision applicable in respect of Brand name of
final product only - Some SSI units manufacture a component or part which bears the
brand name or trade name. These parts are for use by the large manufacturer as a part
(Original Equipment part). Board has accepted this legal position - Board, vide its
Circular No. 345/35/87-TRU dated 29-10-87 has already clarified that SSI units
manufacturing metal labels/collapsible tubes/crown corks/PP caps, which bear the name or
logo of brand name owner would be eligible for SSI concession. In a further Circular No.
213/28/87-Cx.6 dated 27.11.87, Board has clarified that the aforesaid principle is also
applicable in case of metal containers/HDPE bags etc. bearing the branded name of large
manufacturer i.e. they will be eligible for SSI concession.
Turnover of
branded goods not to be considered for SSI exemption - The excise exemption is
still available if a manufacturer manufactures goods under his brand name, or without
brand name in addition to goods others brand name or trade name as well as other
goods. He will be eligible to excise exemption and concession on goods under his brand
name or without brand name and for considering the limit of Rs 100 or 300 lakhs, the goods
manufactured with others brand name and cleared on full payment of duty will not be
considered. - CCE v. Power and Control - 1992 (62) ELT 662 (CEGAT).
Valuation in
respect of branded goods manufactured by SSI - The legal
position is as follows - (a) If the brand name does not belong to the manufacturing unit,
it is not entitled to any SSI concession. It has to pay full normal duty. (b) The duty is
payable on the basis of price charged by SSI unit to the brand name owner, if the
relationship between the SSI manufacturer and the brand name owner is on 'principal to
principal' basis. (c) If the goods are covered under section 4A, i.e. valuation on basis
of Maximum Retail Price printed on the carton, the manufacturing unit has to pay duty on
basis of MRP printed on the product package, irrespective of the price at which he is
selling the product. (d) Brand name owner will not be treated as manufacturer if relations
between actual manufacturer and brand name owner are on 'principal to principal' basis.
Exemption if
branded goods manufactured in rural area - Excise duty on goods manufactured under others
brand name will be exempt if these are manufactured in rural area. 'Rural area' means the
area comprised in a village as defined in the land revenue records, excluding (i) Area
under any municipal committee, municipal corporation, town area committee, cantonment
board or notified area committee or (ii) Any area that may be notified as an urban area by
State Government or Central Government.
Clubbing of
Clearances of SSI
If the same
manufacturer (i.e. firm with same partners or same limited company or same proprietor) has
more than one factories, turnover of all the factories will be clubbed together for
calculating the limit of Rs. 100 lakhs or 3 crores. Thus, if a manufacturer has one unit
at Mumbai with 1.2 crores turnover and another unit at Delhi with 2.1 crore turnover, he
will not be entitled to Excise exemption in any of the factories.
Some times,
as a tax planning, a manufacturer may start another unit, instead of increasing production
in his own factory, so that both units can avail SSI concession. If the other unit belongs
to same proprietor or same company or same partnership firm, the turnover of both these
units will be added together for purpose of SSI concession. To avoid this, the other unit
may be started under different partnership or under different companies. If such other
unit is genuinely separate and independent, their turnover will not be clubbed. However,
if the other unit is a sham or a
facade i.e. deceptive front or a
bogus unit, the turnover of these
two units will be clubbed i.e. considered in total for calculating SSI exemption limit.
This is called clubbing of turnover.
There are
various forms of ownership of an industrial unit i.e. (a) proprietorship (b) partnership firm (c) limited or private limited Company (d) Hindu Undivided Family (HUF) (e) Family Trust. All these forms of ownership have
separate and distinct existence. Clubbing provisions are applicable if two or more SSI
units belong to same proprietor or to same partnership firm or to same private limited
company. However, if one unit A belongs to a proprietor P and
other unit B belongs to a partnership firm where P is one of the
partners, turnover of A and B cannot be clubbed as the partnership
has independent legal status different from its partners. Similarly, if A
belongs to one partnership firm and B belongs to another partnership firm
where some partners are common in both firms, both the units i.e. A and
B will be entitled to separate excise exemption. Same thing holds true if one
unit is a firm and other is a limited Company where some partners of the firm are
directors.
No Clubbing
if two units are independent and no financial flow back - Clubbing
provisions do not apply if both units namely A and B are genuinely
independent units. Often more than one factories are established to avail of excise
concession and real owner is same. As explained above, if there are more than one
factories and various combinations of ownership are : (a) one belonging to a Proprietor and other to a
partnership firm, where proprietor is one of the partners (b) One belongs to a partnership firm and other also
to another partnership firm, where some partners are common and some are close relatives (c) One to partnership firm and other to limited
Company, where relatives of some partners of the firm are directors in the limited
Company. (d) one belongs to HUF and other to
firm where Karta of HUF is a partner - Shakti Eng.
Works v. CCE - 1989 (40) ELT 95 (CEGAT) . (e) two belong to limited companies with some common
directors - Cosmos (India) Rubber Works (P.) Ltd. v. UOI - 1988 (36) ELT 102 (Bom HC) * ITEC (P.) Ltd. v. CCE - 1992 (57) ELT 639 (CEGAT). (f) Two companies
with related directors and common product Padma
Packages P Ltd. v. CCE 1997(90) ELT 175
(CEGAT).
Other similar
combinations are possible. In all these and similar cases, if these two units are truly independent their turnover cannot be clubbed.
However, if the two units are formed with sole or
main purpose of saving on excise, these would be sham i.e. bogus units.
Totality of
circumstances should be seen - Tribunal has
held that the most important test is that if there is no financial control by one over the
other and if there is no flow back of profits, the two units will be treated as
independent units. Other tests to establish that
the two factories are independent are : separate power connection, separate financial
arrangements, separate material procurement, separate registration with Government
authorities like sales tax, income-tax etc., separate employees etc. In short, if the two
units are really independent, their turnover will not be clubbed solely because some
partners/directors/their relatives are common.
Common
funding and financial flow back are important. Mere circumstance of functioning in
adjacent premises and partners being related to one another is not sufficient to warrant
clubbing. The factors which would be necessary to consider clubbing are common control of
production and sales, management control and special financial inter-linking other than
normal commercial transactions. If the combination of circumstances create a pattern
indicative of clearances from plurality of units being made by a manufacturer, clubbing
would be warranted.- Vir Industries v. CCE 1999(109) ELT 322 (CEGAT). [The decision
summarises major case law in this regard].
In K P Associates v. CCE 1999(113) ELT 700 (CEGAT)., it was held that
clubbing of clearances can be done only when the units are dummy ones or in case there is
financial flow back from each other's unit. Clubbing cannot be done merely because there
are common partners.
In J N Marshall P Ltd. v. CCE 1997(96) ELT 149 = 1997(29) ETR 551 (CEGAT), it
was observed that 'Regard must be had to all the circumstances in a given case but
emphasis must be on common control of production and sales or on management control and
special financial relationship existing between the units or profit sharing or financial
flow-back. If the combination of circumstances create a pattern indicative of the
clearances from the plurality of units being made by a 'manufacturer', clubbing is
warranted'.