Insulating the domestic industry from imports

The finance ministry's efforts to protect domestic industry from imports (Read: New CBEC directive gives a leg-up to Make in India in Business Standard of July 27) has raised apprehension on whether litigation will arise due to poor drafting of the notifications.

Through notifications 34/2015-CE, 35/2015-CE and 36/2015-CE all dated July 17, the exemption notifications 30/2004-CE dated July 9, 2004, 1/2011-CE dated March 1, 2011 and 12/2012-CE dated March 17, 2012 (conditions 16, 20(a), 25 and 52A) were all amended.

To the effect that for availing the exemption, the goods must be manufactured from inputs or by utilising input services on which duty or additional duty of customs (CVD) or service tax has been paid and no credit of such duty or CVD on inputs or service tax on input services has been taken by the manufacturer of such goods, under the provisions of the Cenvat Credit Rules, 2004.

This meant the manufacturers must have used duty-paid inputs and tax-paid services. This was an onerous condition, especially for small manufacturers which purchase inputs from the market and services from small service providers.

The ministry realised its mistake and through notifications 37/2015-CE, 38/2015-CE and 39/2015-CE, all dated July 21, inserted an explanation in the said exemption notifications clarifying that for the purposes of the notification(s) appropriate excise duty or CVD or service tax includes nil duty or nil service tax or concessional duty or concessional service tax, whether or not read with any relevant exemption notification for the time being in force. The Central Board of Excise and Customs (CBEC) issued circular no. 1005/12/2015-CX dated July 21, clarifying that domestically manufactured goods covered under the said exemption, notifications/entries continue to be on exempt from excise duty or subject to concessional rate of excise duty, as the case may be, as they were prior to July 17, 2015.

However, doubts persist at the operating levels on whether the manufacturers will be required to prove eligibility for the exemptions by showing that they have used duty-paid inputs or inputs subject 'nil' duty rate or inputs exempted under any exemption notification. The audit teams could allege non-compliance on the basis of legal provisions alone and the department may issue showcause notices on the basis of audit objections. This might lead to unnecessary litigation.

Second, CBEC says the amendments were made to overcome the adverse effects of the Supreme Court judgement in the case of SRF Ltd and ITC Ltd (2015-TIOL-74-SC-CUS), on domestic industry. The exemption is available so long as cenvat credit is not availed by the manufacturer; whether or not duty- paid inputs and/or tax-paid services are used.

The imported goods satisfy these conditions, going by the reasoning in the above referred judgement. The Customs might not accept that and litigation may abound. So, the CBEC must review and redraft the notifications.

email: tncrajagopalan@gmail.com