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Non-excisable goods are included in definition of exempted goods/final products for purpose of Rule 6 of CCR, 2004

By TIOL News Service

NEW DELHI, MAR 02, 2015: WHEREAS many felt that the Central Government would take note of the CESTAT decision in Thyssenkrupp Industries (I) Pvt. Ltd. v/s. CCE , Pune - 2014-TIOL-1825-CESTAT-MUM where the Tribunal acknowledged that the formula given in rule 6 (3A) of CCR, 2004 results into anomaly, surprisingly rule 6 of the CCR, 2004 has largely been left untouched.

The only amendment in rule 6 of CCR, 2004 is by notification 6/2015-CE (NT) dated 01.03.2015 which does the following -

3. In the said rules, in rule 6, in sub-rule (1), after the proviso, the following Explanations shall be inserted, namely: -

"Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory.

Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder."

 The Central government seems to be losing out on the CENVAT credit taken by manufacturers on inputs/input services which have gone into the non-excisable goods that arise/are produced during the manufacture of dutiable/exempted goods or final products.

The Tribunals have by and large held that CENVAT credit cannot be denied in case of emergence of non-excisable goods since they are not to be treated as ‘exempted goods' - remember the ‘bagasse and press mud' issue.

So, the Central government has, for the purpose of rule 6 of CCR, 2004 enlarged the definition of exempted/final products so as to include within its ambit, to reiterate, for the limited purpose of rule 6 of CCR, 2004, "non-excisable goods cleared for a consideration from the factory".

Admittedly, if the "non-excisable goods" are cleared without any consideration, the Explanation 1 fails to become operational.

And if that be so, Explanation 2 would lose its potency. It is another matter that the Explanation 2 can become the hotbed of another ‘valued' litigation within rule 6 of CCR, 2004.

Moreover, the word ‘consideration' is not defined in the CCR, 2004 or for that matter in the CEA, 1944.

Sub-section (d) of section 2 of the Indian Contract Act, 1872 defines 'consideration' as something or act which promisee does at the desire of the promisor.

As lucidly put by the Tribunal in the case of Sony India Ltd - 2002-TIOL-70-CESTAT-DEL, the term "consideration for sale" is what passes from buyer to the seller and not the other way round.

Be that as it may, the TRU-I letter explains this amendment as - making provision relating to reversal for CENVAT credit in rule 6, presently applicable to exempt goods and services, applicable to non-excisable goods also.

Is there any reason to be so cheeky?


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