SEPTEMBER 01, 2015

By Sanjay Kumar

RECENTLY, the Hon'ble SC has passed two significant judgments which pose wide impact on assessees namely DTA units, importers, SEZ units and EOUs as well. In case of Aidek Tourism Services Pvt. Ltd. vs. CC, N. Delhi, as reported in - 2015-TIOL-23-SC-CUS, the Hon'ble Judges decided the issue as to whether assessee was entitled to exemption in the form of refund of CVD as made available to the manufacturers in India under Notification No. 64/93-CE, dated February 28, 1993. Secondly, in case of SRF Ltd. vs. CC, Chennai, as reported in - 2015-TIOL-74-SC-CUS, the Hon'ble Judges decided as to whether the Appellants were entitled to exemption from payment of CVD in terms of Notfn. No. 6/2002. Said two decisions areinter connected and must be read in conjunction but before getting into the principles decided by the Apex Court, some basic facts are to be recounted to understand how it impacts an importer,DTA units, importer traders, SEZ units and EOUs.

1.1 SECTION 3. Levy of additional duty equal to excise duty, sales tax, local taxes and other charges.- (1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.

1.2. The main clause of sub-section (1) of the charging section 3 of the CEA, 1944 provides for levy and collection of CE duty on all excisable goods produced or manufactured in India.

1.3. SECTION 3. Duties specified in the [[First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985] to be levied. - (1) [There shall be levied and collected in such manner as may be prescribed, -

(a)[a duty of excise to be called the Central Value Added Tax (CENVAT)] on all excisable goods [(excluding goods produced or manufactured in special economic zones)] which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);]

2. Thus, it is very clear that a importer shall be required to pay the additional duty of customs commonly known as CVD (countervailing duty) which would be equal to the duty for the time being leviable on the like goods produced or manufactured in India. And this deeming fiction clearly holds that the goods imported in India shall be treated as goods produced or manufactured in India for the purpose of levy of CVD at the time of importation and the rates would be equal to the rates prevailing under CETA. The Hon'ble Supreme Court has very nicely explained and removed the intricacies involved in interpreting the legislative intent and decided the issue in favor of the assessees.

3. The admitted facts in Aidek is that they imported saloon cars and CVD at the rate as leviable for the time being under the CETA, 1985 @ 40%, was levied. Subsequently, Aidek claimed refund of 10% of CVD under section 11B of the CEA, 1944 citing the Notification No. 64/93-CE, dated February 28, 1993 under which the domestic manufacturers of the saloon car are entitled to refund of 10% of duty, subject to the conditions as mentioned therein. The Tribunal, Delhi rejected the refund claim on the ground that the exemption by way of refund of duty is based on condition that the Appellant in this case is not a manufacturer and has not paid BED at the time of removal, being an importer. Interestingly, the Tribunal Mumbai upheld the refund claim of the Appellant on the ground that levy of CVD per se on importation treats the importer as the manufacturer in India. Thus, conflicting judgments landed in the Apex Court and the issue before the SC was whether the importer was entitled to exemption by way of refund of CVD of 10% or not. The Hon'ble SC took the note of the judgment of Tribunal, Delhi that the levy under Section 3 of the Customs Tariff Act is in the nature of a countervailing duty and is with a view to levy additional duty on an import to counter balance the Excise duty payable on a like article indigenously manufactured. The Court also interpreted the scope/effect of Section 3 of the Tariff Act, particularly the expression, "Excise Duty for the time being leviable on a like article if produced or manufactured in India"and the explanation thereto. It further held that for quantification of additional duty in such a case, it has to be imagined that the said article imported had been manufactured or produced in India and then to see what amount of Excise duty was leviable thereon. In this regard it observed -

4. Finally, the Apex Court allowed the appeal 2015-TIOL-23-SC-CUS preferred by the assessee importer and reversed the order of the Delhi Bench of CEGAT and upheld the view of the Mumbai Bench of CEGAT and thereby dismissed the appeals preferred by the Revenue. Thus, outcome of these appeals is that the assessee importer shall be entitled to refund of 10% CVD paid.

5. Further, in case of the SRF Ltd. case, the Appellant imported NFY falling under Ch. 54 of the CTA and claimed NIL rate of CVD citing the exemption under serial no. 122 of the Notfn No. 6/2002-CE, 01.03.2002. The Appeals filed by the Appellant at first three stages i.e. the DC, CEX, Commissioner (Appeal) and Tribunal, the benefit was denied on the ground that the conditions as mentioned at s. no. 20 of the said notfn. has not been fulfilled by it. It would be relevant to mention here that as per serial no. 122 of the said notification the rate of BED/CVD, as the case may be, under the First Schedule of the CETA, 1985 was NIL subject to the condition no. 20 which stated as under:

"20. If no credit under rule 3 or rule 11 of the CENVAT Credit Rules, 2002, has been taken in respect of the inputs or capital goods used in the manufacture of these goods."

5.1. The Tribunal had decided that no credit is admissible to the Appellant being importer, so question of fulfilling the said condition does not arise and hence not entitled for such exemption. The Hon'ble SC first opined that the aforesaid reasoning is no longer good law after the judgment of this court in case of Thermax (P) Ltd. vs. Collector of Customs, - 2002-TIOL-683-SC-CUS-LB which was affirmed by the Constitutional Bench in the case of Hyderabad Industries Ltd. vs. UOI - 2002-TIOL-369-SC-CUS-CB and also referred to the judgment pronounced by this very Bench in case of the Aidek (supra) after summarizing the case of Thermax and Hyderabad Industries, supra. Finally, it held that Appellant are entitled to exemption from payment of CVD in terms of Notfn. no. 6/2002, so appeals were allowed and demand of CVD raised by the respondent-authorities was set aside.

6. Thus, the principles of the law stands decided on the issue of the applicability of the provisions of the Central Excise Act, 1944 and the rules made thereunder in case of importers,be it manufacturer importer or trader importer, that when the imports are done from outside country, the rate of duty under section 3 of the CTA would be equal to the duty leviable under section 3 of the CEA for the time being on the goods produced or manufactured in India.

7. However, it would be interesting to examine the same in case of the SEZ and EOU which are also treated as foreign place when the goods are imported from there or brought into India i.e. DTA for the purpose of charging customs or excise duty.

8. FOR SEZ:- In terms of Section 30 of the SEZ Act, clearances would be chargeable to duties of customs including CVD, antidumping & safeguard duties under the CTA, as leviable on such goods when imported. In order to determine the applicable CVD rate on subject goods at the time of import, Sec 3(1) of the CTA comes into play as per which CVD would be equivalent to the Central Excise Duty for the time being leviable on a like article, if manufactured or produced in India. Since, the SEZ units are not allowed to take benefits under CCR, 2004, so question of denial of any benefit of NIL rate of duty i.e. CVD payable under section 3(1) of the CTA, does not arise at all, as the whole of the excise duty payable as prescribed in the CETA is exempt for the local manufacturers for subject goods. Consequently, no CVD would be payable by the SEZ unit on clearance of subject goods from its SEZ unit to DTA. This has been held by the Hon'ble High Court of Gujarat in the case of Roxul Rockwool Insulation India Pvt. Ltd. vs. Union of India & Others as reported in - 2014-TIOL-2123-HC-AHM-CUS.

9. FOR EOU:- Far more interesting would be to look into this aspect in case of EOUs.

Goods produced or manufactured in EOU are charged to duty in terms of proviso to sub-section (1) of section 3 CEA, in the manner as prescribed under the rules framed for the purposes. There are significant difference between the main clause and proviso to sub-section (1) of sec 3 ibid. In case of applicability of main clause, the manufacturer or producer is liable to pay CE duty as per the tariff rate or relevant notifications whereas in case of proviso, the EOU is subjected to duty of excise when brought to any place in India which is sufficient to interpret that provisions of the CEA do not treat the said excisable goods as manufactured or produced in India though all corresponding provisions of the CEA and Rules are made applicable on fictional grounds. Thus, when the goods are brought out of EOU premise to any other place in India, duty shall be an amount equal to the aggregate of the duties of customs which would be leviable [under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force], on like goods produced or manufactured outside India if imported into India. Thus it leads to provisions of the CA, 1962 which further leads to sec 3 of the CTA, 1975. So it is clear that the measure of duty applied is as per the Customs Act, 1962. In a simple language, EOU unlike the DTA units will be subjected to duty of three types i.e. BCD under CTA + CVD u/s 3(1) of CTA (which is equal to BED for the time being leviable on the like goods produced or manufactured in India) + SAD u/s 3(5) of the CTA (in addition to EC & SHEC which is not applicable now). It is also relevant to mention here that after aggregating the said three types of duties, the resultant duty would be duty of excise/duties of excise/excise duty payable by EOU under section 3 of the CEA, 1944. Now the ratio of the said two judgments of the Hon'ble Court is applied then what would be the situation in case of EOU.

10. If the ratio of the Aidek is applied then the removals from EOU will attract the CVD at the rate which is prevalent for the time being to a manufacturer or producer in India and thus the NIL rate would be applicable and not the tariff rate. So also if the ratio of the SRF is applied then also the EOU would be entitled for the exemption from payment of CVD in terms of the relevant Notfn. Thus, the said two judgments clearly establish that the CVD would be equal to the excise duty for the time being leviable on a like article if produced or manufactured in India. However, things may change, if the comparison is made under a situation where DTA manufacturer is manufacturing like goods and taking credit under the provisions of the CCR, 2004 (be it input, CG or input service or all), then in such a case, the exemption under the Notfn. will not be available to the goods manufactured or produced in India.

11. Vide Rule 17 of the CER, 2002, the EOUs are allowed to utilize the credit earned under CCR, 2004 for payment of duties of excise under proviso to section 3(1) of the CEA. Thus, if the EOUs take such facility of credit, then they would be required to pay CVD at tariff rate as it would be applicable to the DTA units in India to pay at the tariff rate while taking such credit. The ratio of the SRF judgment and Aidek supports the view. Here it would be relevant to discuss that this condition would not be applicable in case of clearances from SEZ as the units located in the delineated Zone are not allowed to take credit under CCR, 2004. And this is what the ratio of Roxul, Thermax or Hyderabad Industries means. The Hon'ble HC of HP in case of Satya Metals as reported in 2013 (290) E.L.T. 514 (H.P.) has also held that for DTA clearances of EOU, the CVD payable shall be computed at effective rate of duty applicable to goods cleared by domestic unit and that while calculating CVD it has to be assumed that goods were manufactured in India and applicable rate of duty is applied to imported goods. So it becomes very clear that the EOUs if they take benefit of CCR, 2004, then, for them the effective rate of duty applicable would be the tariff rate. Let us take one example where BCD is 20%, CVD is 12% by tariff and NIL by one Exemption Notfn. (and assuming that SAD is not payable due to VAT being payable under sec 3(5) of the CTA and in terms of condition (1) of Notfn. no. 23/2003-CE) and assuming that EOU has utilized imported and/or domestic raw materials or input services. Then in such situation, as per serial no. 2 of the said Notfn., EOU would be required to pay BCD at the rate of 50%, CVD at 12% as the CVD payable here would be equal to the duty for the time being leviable on the like goods produced or manufactured in India while taking credit under CCR, and no exemption would be available to the DTA manufacturer and so also to EOU.

12. However, one more interesting factor would emerge from the above deliberations and that what would be that the rate of duty applicable when it is NIL by way of the tariff and the Notfn. As far as DTA manufacturer is concerned, it would neither pay duty nor it would be entitled to the benefits available under CCR, 2004 in either cases, however what would be the situation for EOU when the CVD is NIL by virtue of tariff and Notfn. both whereas BCD is chargeable to duty under CTA. As per the settled provisions what would be paid by the EOU would be duty of excise after aggregating all such duties under CTA and if it comes to NIL, then such goods produced by EOU would be treated as non-excisable.Let's take up the above example by assuming that the rate of CVD is NIL by way of both the tariff and the Exemption Notfn., then what would be stand of the department :

A. whether Cenvat credit would be denied to the EOU, or

B. EOU would be allowed to avail the benefit of CCR and charge NIL CVD at the same time.

13. As far as point A is concerned, in my view, it does not appear that Cenvat credit would be denied to them as finally they are paying duty of excise under section 3 of the CEA and there is no provision to deny the same under CCR, 2004 in such cases and also there are no different rates available with the department so as to charge the highest rate for such clearances in terms of sec 3 of the CEA and sec 3 of the CTA. Further, if the EOUs are allowed to take credit under CCR, then it would put the DTA units under disadvantageous condition which is not the legislative intent.

14. Therefore, the CBEC is requested to clarify as it would be difficult for the assessees to take a stand in view of the consequences arising out of the same in the form of deferred duty payment, Interest thereon and Penalty which would be not viable for them if the Government wants to formulate the 'MAKE IN INDIA' concept successfully.

15. It is also an urgent need to resolve the issue for smooth implementation of GST.