ONE TIME CREDIT ON GOODS LYING IN STOCK

ONE TIME CREDIT ON GOODS LYING IN STOCK

The CENVAT credit facility for Textile industry on actual basis has been introduced from April 1, 2003. As a measure, the Board has introduced transitional provisions for one time credit on stock as on 31.03.2003 under Rule 9A of Central Excise Rules, 2002. The provisions relating to same has been introduced by Notification no. 25/2003-CE (N.T.) dt. March 25, 2003. These are certain clarifications needed urgently for smooth implementation of the same: -

1. VALUE OF INPUTS AS SUCH AND UNDER PROCESS: -

As per Rule 9A (1) manufacturer can take credit on stock lying with him on the basis of actual duty paying documents. Otherwise, he can take credit on the basis of actual duty paying documents. Otherwise, he can take credit on the basis of declaration made by him under Rule 9A (2). It clearly says that credit will be available for inputs lying in stock or in process or contained in finished goods.

Further, Rule 9A (2) (ii) provides that, a manufacturer whose finished goods and inputs covered by earlier deemed credit Notification No. 6/2002-CE (N.T.) dt. March 1, 2002, this transitional credit will be equal to product of: -

i) the applicable percentage credit in the said Notifications (66.67 % or 33.33%) ;

ii) the value of such finished product declared by the assessee ; and

iii) the duty rate applicable to such final product in terms of Notification No. 7/2003-CE dt. 28.02.2003 (10% = 8% CENVAT, 2% AED).

Thereafter, this transitional credit on stock will be available on value of finished goods. There was under process as well as inputs as such lying in stock as on March 31, 2003. Therefore, credit will be available on likely value of finished product made from these products. This argument also gets strength from the fact that earlier deemed credit was available on value of finished goods at the time of removal of goods. This need clarification from the Board.

2. UNUTILIZED DEEMED CREDIT: -

The exporter has deemed credit unutilized lying with them as they can take the same on clearance of consignment for export under bond. This is clear from provisions of deemed credit. Notification No. 6/2002-CE (NT) dt. March 1, 2002. This reads as follows: -

“2(iii) The credit of declared duty allowed in respect of the declared inputs shall be utilized towards payment of duty of Excise or the additional duty of excise leviable under the said Central Excise Act and the Additional Duties of Excise (Goods of Special Importance) Act, on the said final product:

Provided that the credit of the declared duty in respect of the declared inputs used in the final products cleared for export under bond shall be allowed to be utilized towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguard, conditions and limitations as may be specified by the Central Government in the Official Gazette.”

This Notification is issued under Rule 11 of Cenvat Credit Rules, 2002. This is available on deemed basis. The department is contending that this balance credit can not be utilized for payment of duty as there is no provision for converting this credit in normal Cenvat Credit. But this is wrong conclusion drawn by them.

The deemed credit is also a Cenvat Credit although under Notification issued from power under Rule 11 of Cenvat Credit Rules and there is no provision for lapsing of the same. Moreover this unutilized credit can be claimed refund from the department as per provisions of Notification no. 6/2002 CE (NT) dated 28.02.2002. The situation should be made clear to avoid unnecessary litigation.

3. TRANSITIONAL CREDIT ON INTERMEDIATE PROCESS:-

Earlier to this budget, the process of stentering and calendaring was exempt for cotton fabrics. By virtue of exemption Notification No. 6/2002 CE dated 01.03.2002 (S. No. 114). This was available to factory who does not facility of printing, dying or bleaching with the aid of power or steam. As such these processes were separately installed in a factory. They were receiving cotton fabrics and clearing the same at Nil rate of duty.

They were also receiving the man made fabrics and taking the credit of duty paid on earlier process and clearing after payment of duty. They were not covered under Notification No. 6/2002 CE (NT) dated 01.03.2002 as they were receiving processed fabrics. The Explanation 3 of impugned Notification debars them which reads as follows:

“For the removal of doubt, it is clarified that the provision of this Notification shall not apply where processed fabric itself is used as an Input for other processing”.

Now, the duty is imposed on processing of cotton fabrics with these machines. This earlier exemption is withdrawn from 01.03.2003. They have to pay duty on stock lying with them if the same is cleared after 01.03.2002. However the transitional credit on stock will not be available to them as they were not covered under Notification No. 6/2003 CE (NT). These processes are intermediate processes and processed fabric is received by them. Now, they will have to pay the duty at the rate of 10% on total value which is very heavy. This is not intention of the Government. Therefore it needs clarification from the Government.

4. TRANSITIONAL CREDIT ON HAND PROCESSING UNITS:-

The transitional credit on deemed basis is available to fabrics processors only if these Inputs and finished goods are covered under Notification No. 6/2003 CE (NT). The stock of hand processing units is not covered under aforesaid Notification as their final product is exempt from levy of duty. However these units send their product on padding, stentering, calendaring, etc., which is done with the aid of power. Earlier these were exempt from levy of duty but Exemption is withdrawn from 01.03.2003. Thus, duty is to be paid on them and transitional credit is not available to these units. They cannot compete with power operated units. This situation also demands immediate intervention.

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ONE TIME CREDIT ON GOODS LYING IN STOCK

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