Budget excise levy a delayed knockout

Count shows FM’s ‘just 130’ list to be 500-plus items jerked into tax net, with ambiguity riders, all payable since last week

Industry may have felt relieved when the Union Budget presented eight days earlier seemed to spare it from any big negative. But the devil, as the saying goes, is always in the details and the fine print of the Budget reveals some.

In an innocuous-sounding statement, the finance minister had said he was bringing 130 of 370 hitherto exempted items under the excise net, by prescribing a nominal rate of duty of one per cent. This proposal was to prepare the ground for a transition to the goods and service tax.

However, while the relevant notification, No. 1/2011-Central Excise, contains 130 entries, the actual coverage is much wider and the products brought under the one per cent duty run well above 500. For, the products exempted earlier were covered by 130 entries, with each entry for the products covered by the specified sub-heading or heading or chapter of the Central Excise Tariff. Since the Notification prescribes the one per cent rate by reference to such tariff heading/chapter and the description of goods, the actual coverage is quite wide. (For product description, visit: https://www.business-standard.com/content/general_pdf/030911_01.pdf)

For instance, at Serial No 14, ‘all goods’ of Chapter 20 are covered. This means all types of preparations of vegetables, fruits, nuts or other parts of plants covered under nine headings of Chapter 20 are now subjected to the levy.

Similarly, all goods falling under heading 2,701 are covered and therefore, ‘Coal, briquettes, ovoids and similar solid fuels manufactured from coal’ and the goods covered under all the sub-headings of Heading 2701 would attract the levy.

So, too, with many other such headings like Headings 2702 to 2706, 4703 to 4706, 8801, 8804, 8805, 8901 and 8904, to cite a few, where all goods covered by these headings have been brought under the levy.

“There are several entries in the Notification which describes the specified goods as ‘all goods’, taking the total number of products under one per cent excise levy to well above 500,” says Shailesh Sheth, a Mumbai-based advocate.

With buffer, but...
However, adding that “While the finance minister in his speech did not mention about the availability of Cenvat credit, the option of paying duty at five per cent on such items with Cenvat credit benefit has been granted by an alternative notification.”

Almost all the items covered by these 130 entries of the Notification are consumer ones and generally made by small-scale units. Taking this into consideration, the benefit of small-scale exemption up to Rs 1.5 crore under Notification No. 8/2003-Central Excise has been extended to such items. However, this benefit of small-scale exemption would be subject to the prescribed conditions. The notification grants the benefit of exemption if the aggregate value of clearances of all excisable goods during the preceding financial year did not exceed Rs 4 crore and if the goods do not bear the brand name or trade name of another person.

The notification also provides for computation of the exempted turnover of Rs 1.5 crore for the financial year and also the aggregate turnover of Rs 4 crore during the preceding financial year.

As the levy has become effective from March 1, there is general confusion as to how to obtain registration and clear the goods on payment of duty. Said an industry representative, “The least the FM could have done was to give a breathing time of at least one month and put the levy into effect from April 1.”