Drafting errors at CBEC go unnoticed for long periods

The Finance Act, 2011, through its Section 73(b) read with ‘Twelfth Schedule’ amends the Third Schedule to the Central Excise Tariff Act. The interesting point is that there is no Third Schedule to the Central Excise Tariff Act.

The background to this amendment is somewhat unusual. The Third Schedule to the Central Excise Act (CEA) of 1944 specifies goods in relation to which any process that involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer amounts to manufacture. Section 4A of the CEA empowers the government to notify goods in respect of which valuation shall be done on the basis of maximum retail price (MRP) less notified abatements. Several goods have been notified for MRP-based valuation through notification number 49/2008-CE(NT) dated December 24, 2008.

The government brought in ‘Parts, components and assemblies of automobiles falling under any Chapter’ under the MRP-based valuation on June 1, 2006. Simultaneously, the Third Schedule to the CEA was also amended to include these items. On February 27, 2010, the notification (number 49/2008-CE(NT) dated December 24, 2008) issued under Section 4A of the CEA was amended (at S.No. 108) changing the description for the above items to read as ‘Parts, components and assemblies of vehicles (including chassis fitted with engines) falling under Chapter 87 excluding vehicles falling under headings 8712, 8713, 8715 and 8716’. But the description (at S.No. 100) in the Third Schedule to CEA remained unamended. This deficiency was rectified (by amending the description at the said S.No. 100) on April 29, 2010. But, the period from February 27, 2010, to April 29, 2010, remained uncovered. This deficiency was sought to be rectified through the Finance Act, 2011, (by changing the description at the said S.No. 100) with retrospective amendment effective from February 27, 2010. However, the amendment is made to Third Schedule to the Central Excise Tariff Act and not the Central Excise Act, 1944.

Similarly, ‘Parts components and assemblies of goods falling under tariff item 842641.00, heading 8427, 8429 and sub-headings 8430.10’ were brought under MRP-based valuation by inserting S.No. 109 in the notification no. 49/2008-CE(NT) dated December 24, 2008. However, the items were not included in the Third Schedule to the CEA. This deficiency was also sought to be rectified through the Finance Act, 2011 (by inserting S.No. 100A in the said Third Schedule) with retrospective amendment effective from February 27, 2010. However, the amendment also speaks of Third Schedule to the Central Excise Tariff Act and not Central Excise Act, 1944.

Meanwhile, the excise department has seized spare parts and components of earth removing machinery like excavators and loaders from the depots of some companies on the grounds that repacking and labelling is being done without obtaining Central Excise registration whereas the parties are claiming that their activity does not amount to manufacture as the Third Schedule to CEA does not cover their items.

All these episodes speak of drafting errors at the Central Board of Excise and Customs that go unnoticed for long periods before these are rectified through retrospective amendments that cause fresh complications and difficulties at the operating levels.

Email: tncr@sify.com