CENTRAL EXCISE - SMALL SCALE INDUSTRIES
By Madhukar N Hiregange (DISA, FCA)
& Srikantha Rao T (B.Com, ACA)
A manufacturer who manufactures excisable goods in India is liable to pay Central Excise duty on such goods. The duty is collected on clearances at the rates set out in the First Schedule to the Central Excise Tariff Act 1985 even though the liability arises on manufacture. In order to ascertain liability one would have to look into factors such as process involved and whether it amounts to manufacture, nature of product manufactured i.e whether the same can be regarded as “goods” at all and excisability of the same. The duty of excise by nature is an indirect tax the burden of which can be passed on to the buyer. But having said that a small scale manufacturer also has the option of going in for the exemption benefit wherein he would not be required to pay duty of excise on his clearances and this could be beneficial to a manufacturer whose Cenvat credits are not substantial as a result of which his duty payments would have been in cash but for this exemption. It would also be useful for one who sells the goods in the unorganized sector where the credits are not availed or one who manufactures finished goods consumed by the citizens.
How is the exemption provided to Small Scale Manufacturers?
The exemption is presently governed by a notification issued by the Central Government under section 5A (1) of Central Excise Act 1944. The clearance of excisable goods specified in the said notification up to the value of Rupees 150 lakhs in a financial year have been exempted from payment of basic excise duty under First Schedule to CETA 1985 and special excise duty under Second Schedule to CETA 1985. The exemption would be available provided the aggregate value of clearances of all excisable goods for home consumption during the preceding financial year did not exceed Rs. 400 lakhs. The financial year for the purpose of this exemption begins with the first day of April every year. The exemption is with the condition that no cenvat credit can be claimed by the manufacturer who opts for this exemption, until such exemption ceases. Once The excisable clearances exceed the limit of Rs. 150 lakhs, the manufacturer would commence payment of duty on his clearances and would be entitled to claim Cenvat credits on inputs, capital goods and input services used for manufacture of excisable goods which are cleared on payment of duty.
This exemption is optional and the assessee has to exercise his option before affecting the first dutiable clearance during the financial year.
At the time of exercising the option, the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise may intimate in writing with the following particulars:
- Name and address of the manufacturer
- Location of factory
- Description of inputs used in manufacture
- Description of the specified goods manufactured
- Date of exercising the option
- Aggregate value of clearances till date of exercising option (excluding clearances which are exempt under any other notification or not liable at all as well as clearances not eligible for exemption, and value of inputs used in further manufacturing of eligible goods within the factory of production/manufacture)
The copy of the intimation may also be sent to the jurisdictional Superintendant of Central Excise.
Where the manufacturer does not opt for this exemption he would be required to pay duty of excise from the very first clearance of excisable goods and would be entitled to claim the benefit of Cenvat credit of excise duty on his inputs and capital goods and of service tax paid on input services.
What is the value of clearances exempted when a manufacturer has more than one factory from which excisable goods are cleared ?
The exemption is in respect of the aggregate value of all clearances of specified goods undertaken from the said factories and the exemption does not apply to each of those factories separately. For instance if a manufacturer has two factories clearing the specified excisable goods, he is entitled to an exemption of only Rs. 150 lakhs and not Rs. 300 lakhs for both the factories put together. Even where the specified excisable goods are cleared by more than one manufacturer from the same factory, the exemption would be Rs. 150 lakhs for both those manufacturers put together.
What are the clearances to be excluded for the purpose of determining the value of clearances under this notification?
The manufacturer is required to calculate the value of clearances during the preceding financial year to ascertain whether he is entitled to claim the SSI exemption benefit for the financial year in question. The aggregate value of clearances of all excisable goods cleared for home consumption during the said preceding financial year should not have exceeded Rs. 400 lakhs. Where the said limit is not exceeded, the manufacturer would be entitled to claim the benefit of exemption of Rs. 150 lakhs in respect of clearance of excisable goods finding a mention in this notification, for the financial year in question. The goods to be cleared by him should be those which qualify for exemption as per this notification and these goods are mentioned in the Annexure to this notification.
The following clearances are excluded for the purpose of determining whether the aggregate value of excisable clearances during the relevant financial year has crossed the exemption limit of Rs. 150 lakhs –
- Value of clearances pertaining to goods exempted by way of any other notification or those goods which are not excisable for any other reason
- Clearances of goods under the brand name or trade name of any other person as these goods are not entitled to any exemption under this notification
- Value of clearances of goods eligible for exemption which are used as inputs for further manufacture of goods eligible for exemption (under this notification), within the factory of production/manufacture i.e. intermediate products used within the factory of manufacture.
For the purpose of ascertaining whether the aggregate value of all excisable clearances for home consumption in the preceding financial year exceeded the limit of Rs. 400 lakhs, the following clearances are excluded -
- Clearances of goods under the brand name or trade name of any other person as these goods are not entitled to any exemption under this notification
- Value of intermediate products used within the factory of manufacture as inputs for manufacture of goods eligible for exemption under this notification.
- Clearances which are exempt from whole of duty of excise under specified notifications – 214/86 CE dated 25.03.86, 83/94 CE dated 11.04.94 and 84/94 CE dated 11.04.94
- Clearances of excisable goods to a unit in SEZ, or to a 100% EOU or a unit in EHTP or STP or to a unit in a Free Trade Zone
- Clearances of excisable goods to United Nations or to an International Organisation for their official use or to projects funded by them which qualify for exemption under notification 108/95 CE dated 28.08.95
It is to be noted that since the phrase used is “clearances of excisable goods for home consumption”, clearances for exports would be excluded for the aforesaid calculation whether it is for ascertaining the limit of Rs. 400 lakhs or Rs. 150 lakhs. But export clearances to Nepal or Bhutan would be included for the purpose of aforesaid calculations.
Whether the benefit of exemption under this notification is not at all available where goods are manufactured under the brand name of another person?
Generally, where the excisable goods qualifying for exemption under this notification are manufactured and cleared under the brand name or trade name of another person (brand name or trade name may or may not be registered), the exemption would not be available in respect of such clearances. This restriction would however not be applicable where the goods are manufactured in a factory located in a rural area.
The restriction would also not apply where the goods happen to be components or parts of machinery, equipment or appliances, and are cleared for use as original equipment in the manufacture of the said machinery, equipment or appliances by following the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules 2001.
Besides the aforesaid relaxation, the restriction would also not apply where the brand name or trade name is of the following –
1. Khadi and Village Industries Commission or
2. State Khadi and Village Industries Board or
3. National Small Industries Corporation or
4. State Small Industries Development Corporation or
5. State Small Industries Corporation
The restriction would also not apply to account books, registers, writing pads or file folders falling under Chapter 4820 or 4821 of First Schedule to CETA.
In recent times on a decision of the supreme court in the case of Kohinoor Elastics the bag, box, (other container) manufacturers who were hitherto exempt are being subjected to SCN for a limited period. The paper writers find this type of narrow interpretation of the revenue authorities unbecoming and unnecessary fruitless litigation. For more details post queries on pdicai.org, caclubindia.com
CAclubindia
