Flexible exemptions

SME CHATROOM

Under SSI exemption under notification no. 8/2003 dated 1.3.2003, what are the clearances that need to be taken into account for calculating the exemption limit of Rs 1 crore as well as the aggregate previous year turnover of Rs 4 crore?

In fact, the exemption notification no. 8/2003-CE dated 1.3.2003 gives a table where two entries are given.

The first entry refers to full exemption for first clearances for home consumption up to Rs 1 crore from the 1st day of April in any financial year.

The second entry refers to full exemption for all clearances used as inputs for further manufacture of goods within the factory of production i.e. captive consumption.

As per condition no.(v) of the notification, if the same assessee clears the specified goods (i.e. goods specified in the annexure to the notification) from one or more factories, the value of clearances from all his factories will be clubbed together.

Condition no. (vi) of the notification says that clearances made by more than one manufacturer from the same factory will also be clubbed together.

The following clearances are not to be taken into account, either for determining the exemption limit of Rs 1 crore or the aggregate limit of Rs 4 crore.

clearances bearing the brand name or trade name of another person, which are ineligible in terms of paragraph 4 of the notification

clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods

clearances of strips of plastics used within the factory of production for weaving of fabrics or for manufacture of sacks or bags made of polymers of ethylene or propylene.

In addition, the notification excludes the following clearances for determining the exemption limit of Rs 1 crore.

(a) nil duty items i.e. clearances, which are exempt from the whole of the excise duty leviable under any other notification or on which no excise duty is payable for any other reason;

Also, the following clearances are not to be taken into account for the purpose of determining the aggregate limit of Rs 4 crore:

(a) clearances of excisable goods without payment of duty-

to a unit in a free trade zone or to a unit in a special economic zone or to a hundred per cent. Export-oriented undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Park or

supplied to the United Nations or an international organisation for their official use or supplied to projects funded by them, on which exemption of duty is available under notification 108/95- CE dated the 28th August, 1995..

(b) clearances, which are exempt from the whole of the excise duty leviable thereon under notifications 214/86-CE dt. 25.03.86 or 83/94-CE or 84/94-CE both dated 11.04.94. These notifications relate to job-work.

The explanation (D) and (E) to the notification refer to clearances of Chinaware, Porcelainware and manufacture in a factory belonging to or maintained by the Central Government or by a State Government, or by a State Industries Corporation, or by a State Small Industries Corporation or by the Khadi and Village Industries Commission

It must be noted that "clearances for home consumption", includes clearances for export to Bhutan and Nepal.

It means that only exports made to countries other than Nepal and Bhutan may be excluded.

What is ARE2 form and when is it to be used?

Manufacturer exporters can procure inputs required for export production on payment of excise duty and claim a rebate of the same under notification no. 21/2004-CE(NT) dated 06.09.04 under Rule 18 of Central Excise Rules, 2002.

In such situations they have to clear the export goods under ARE2 form. The ARE2 is the combined application form for claiming rebate of excise duty paid on the inputs used in the manufacture of the final products exported as well as for claiming rebate of excise duty paid on the final products exported.

Manufacturer exporters can even procure inputs required for export production without payment of excise duty under bond under notification no. 43/2001-CE(NT) dated 26.06.01 under Rule 19(2) of Central Excise Rules, 2002. In such situations also they have to clear the goods under ARE2 form.

For availing the benefits of excise duty free procurement of inputs, the procedure specified in notification no. 34/2001-CE(NT) dated 21.06.2001 have to be followed.

When the benefit of duty free procurement of inputs for export production is availed under notification no. 43/2001-CE(NT) dated 26.06.2001, the final products must be exported without duty payment under bond or undertaking (UT1) under notification no. 42/2001-CE(NT) dated 26.6.2001.

In such cases, the ARE2 becomes the combined application form for discharging the obligations under the bond furnished to procure the inputs required for export production without excise duty payment as well as for discharging the obligation to export the final products cleared without payment of excise duty for export under bond or undertaking (UT1) .

For small-scale industries availing themselves of SSI exemption no. 8/2003-CE dated 1.3.2003, the above notifications are very useful if they are not claiming duty drawback or advance license. They can, however claim benefits under Duty Entitlement Passbook scheme or Duty Free Replenishment Certificate scheme.

What are the benefits available for supplies to an export-oriented unit (EOU)?

Chapter 8 of the Foreign Trade Policy covers deemed exports benefits to certain categories of supplies made within India. Supplies to EOU are covered under deemed exports. The benefits available under Para 8.3 of the Foreign Trade Policy include :

a. Advance licence/DFRC
b. Deemed Exports drawback
c. Refund of Terminal Excise Duty

Under the excise notification no. 22/2003-C dated 31.03.2003, the EOU can issue CT3 form against which the domestic manufacturer can remove the goods without excise duty payment. The clearance should be made under ARE3 form and the domestic supplier should obtain re-warehousing certificate to show that the goods supplied have been received at the EOU.

What is the value on which service tax is payable, when some goods are also sold to the customer while providing the service?

With effect from 1.7.2003, in respect of all taxable services, the value of goods and materials sold by the service provider to the service receiver is exempt from service tax, under notification 12/2003-ST dated 20.06.2003. The invoice should show the value of goods sold separately.

The service provider must maintain documentary evidence and records to indicate the value of such goods and materials. Further, the service provider should not have taken Cenvat credit of duty paid on such goods and materials. If he had taken such credit, he should reverse the credit before selling the goods.

Before July 1, 2003, the exemption for cost of goods sold while providing service was available only for authorised service stations. But, now the benefit of exemption is available on cost of goods sold to all service providers under notification no. 12/2003-ST dated 20.06.2003, provided the stipulated conditions are fulfilled.