10 April 2009
when we transfer goods to job worker & he again transfers back such goods after carrying conversion processes(manufacture)....there Rule10A of Valuation Rules 2000 applies.. and the value of goods on which duty will be levied is the sale price by the principal manufacturer at that time
But if the principal manufacturer himself uses such goods and carries out manufacturing process on it then what will be the value on which duty will be levied??
10 April 2009
Captive consumption - Intermediate product
Since excise duty is on manufacture of goods, duty is payable as soon as goods are manufactured within the factory. Such goods are called ''intermediate products'' and its use within the factory is termed as ''captive consumption''. Duty is payable even when goods are despatched from one factory to another factory of the same manufacturer. In A S Processors v. CCE 1999(112) ELT 706 (CEGAT), it was held that once a new marketable intermediate product comes into existence, it is to be charged to duty if not exempted by a notification -- same view in CCE v. Citric India 2001(127) ELT 539 (CEGAT).
However, this will obviously cause inconvenience to manufacturers and hence exemptions have been given in many cases. These exemptions are discussed here.
Exemption to intermediate products used for captive consumption - The intermediate product manufactured within the factory is exempt from duty, if is consumed captively for manufacture of (a) Capital goods as defined in Cenvat Credit Rules i.e. those which are eligible for Cenvat credit or (b) Used for in or in relation to manufacture of final products eligible for Cenvat, made from inputs which are eligible for Cenvat. [Notification No. 67/95 dated 16-3-1995].
The exemption is to basic duty as well as AED(GSI). The exemption is available for all intermediate products, except LDO, HSD and petrol. [These articles are also not entitled for Input Cenvat credit].
Inputs eligible for Cenvat credit even if intermediate product exempt - CBE&C had clarified, vide para 5 of circular No. B4/7/2000-TRU dated 3.4.2000, that Cenvat credit should not be denied if the inputs are used in any intermediate of final product, even if such intermediate product is exempt from payment of duty. The idea is that Cenvat credit is available so long as the inputs are used in or in relation to manufacture of final product, and whether directly or indirectly -- view reiterated in Chapter 5 Para 3.9 of CBE&C''s CE Manual, 2001. -- same view in CCE v. Hindustan Sanitaryware 2002(145) ELT 3 (SC), in respect of earlier notification 217/86.
Final product should not be exempt from duty - This exemption is not available if final product is exempt from duty or is chargeable to nil rate of duty. In other words, if no duty is payable on final products, duty will be payable on intermediate products.
Exemption if final product cleared for deemed export - As per excise provisions, no duty is payable if final product is cleared * to EOU * to a unit in Electronics Hardware Technology Park * to a unit in Software technology park. In such cases, duty on intermediate product is not payable even if final product is cleared without payment of duty. -- provisos (i) to (iv) to Notification No. 67/95-CE dated 16.3.1995.
Goods cleared to UN, WHO etc. -- Final products cleared to ILO, WHO, UNDP, UNIDO programme etc. are exempt under Notification 108/95-CE dated 28.8.1995. In such case, intermediate product will be exempt from duty. - -- proviso (v) to Notification No. 67/95-CE dated 16.3.1995.
Capital goods manufactured and used within factory -- As per notification No. 67/95-CE dated 16-3-1995, capital goods (as defined in Cenvat Credit Rules) manufactured in a factory and used within the factory of production are exempt from excise duty. Further, as per explanation 2 to rule 2(g) of Cenvat Credit Rules, inputs include goods used in manufacture of capital goods, which are further used in the factory of manufacturer. Thus, if capital goods are manufactured and used within the factory, Cenvat credit can be availed of goods, which are used to manufacture such capital goods. Moreover, no duty will be payable on such capital goods.
Cenvat credit on capital goods used in manufacture of exempt intermediate product -- It may happen that capital goods may be used in manufacture of an exempt intermediate product, but final product may be dutiable. In such case, Cenvat credit is available on such capital goods, if final product is chargeable to duty. -- CBE&C circular No. 665/56/2002-CX dated 25-9-2002.
Exemption if goods cleared under rule 6 of Cenvat Rules -- If final product is exempt from duty, normally duty is payable on intermediate product. However, if final product is cleared as per provisions of rule 6 of Cenvat Credit Rules [i.e. after paying 8% of price as ''amount'' or after reversing Cenvat credit], intermediate product will be exempt from duty. -- proviso (vi) to Notification No. 67/95-CE -- clarified and confirmed in CCE, Cochin TN 68/2001 dated 24.7.2001].
Provisions, not applicable to matches as final products - The provisions of notification No 67/95 dated 16.3.95, are applicable to all final products except matches [This item is also excluded from Cenvat provisions].
Parts manufactured within the factory for repairs - Goods manufactured in a workshop within the factory for use within factory for repairs or maintenance of machinery installed within the factory are exempt from duty - [Notification No. 65/95 dated 16-3-95]. Thus, no duty is payable on parts manufactured within the factory for repairs or maintenance of machinery within the factory.
Intermediate products used captively for exported goods - Intermediate products manufactured and used within the factory for manufacture of final products are exempt from duty, even if CT-3 certificate is not issued and Central Excise (Removal of Goods at Concessional Rate of Duty for manufacture of Excisable Goods), Rules [earlier Chapter X] procedure is not followed, subject to the condition that documents / records are available with manufacturer that the intermediate goods have been used for export purpose only - CBE&C circular No. 229/63/96-CX dated 8-7-1996, amended vide 303/19/97-CX dated 11-3-1997.
Goods manufactured for defence/Government, etc. - Some goods are exempt from duty if they are supplied to defence, railways, defence stores, Indian Navy, or if manufactured in ordnance factories, mint, prison, mine, Government tool rooms, etc. In such cases, if an intermediate product gets produced while manufacturing final product, such intermediate product is also exempt from duty - Notification No. 83/92 dated 16-9-92.
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