MARCH 03, 2011

By Pradeep Jain, CA and Preeti Parihar, CA

FINANCE BILL, 2011 has imposed excise duty on a no. of goods that were exempted prior to announcement of Budget. It has withdrawn a no. of exemptions and has imposed the excise duty on them. One such withdrawal of exemption has been done in case of utensils made up of stainless steel and falling under tariff heading 73239420.

Prior to Budget, 2011; utensils were exempted from payment of excise duty vide serial no. 11 of the Notification no. 10/2006-CE dated 1.3.2006. Now, excise duty has been imposed on the same vide Finance Bill, 2011. The rate of excise duty has been imposed @ 1% under Notification no. 1/2011-CE dated 1.3.2011 and @ 5% vide Notification no. 2/2011-CE dated 1.3.2011.

The process of manufacturing the utensils:-

The process of manufacture of utensils starts from purchase of SS flats which are converted to patta patti by employing the process of hot rolled and then cold rolled. After applying the cold rolled process, the patta patti is converted to stainless steel circles which are further used for manufacture of utensils. Now, the utensils manufacturers will like to take the Cenvat credit of SS flats @ 10% and pay duty @ 5% so that there is no cash outflow.

The practice employed in industry:-

Thus, for manufacture of utensils prominently two types of manufacturer are there in the industry:-

Category I:-

Those units which procure the duty paid SS flats, take the Cenvat Credit and send them to job worker for carrying out the process of hot rolled and cold rolled. The goods received from the job worker are the cold rolled patta patti that are used by the manufacturer for making the circles that are further used for manufacture of utensils.

Prior to Budget, 2011; these units were not allowed to take the credit as the final product, i.e., utensils were exempt. However, now, such units can avail the Cenvat Credit on SS flats and use the same for paying the excise duty on utensils.

However, the levy of duty on utensils may obsolete the compounded levy scheme if the SS patta patti are get manufactured on the job work. In this case, credit of the SS flats will be taken and then these will be sent to job worker for carrying out cold rolled process. If the job worker is operating under the compounded levy scheme, he may be denied the benefit of this scheme. This is possible due to proviso contained in the notification no. 17/2007-CE dated 1.3.2007 which reads as follows:-

“Provided that no credit of duty paid on any raw materials , component part or machinery or finished products used for cold rolling of stainless steel pattis/pattas, or aluminium circles under the Cenvat Credit Rules, 2004 shall be taken.”

The above proviso says that the credit of raw material used in manufacture of cold rolled rolled patta patti is not taken. In this case, the principle manufacturer has taken the credit of duty paid on SS flats which are sent to the job worker. Thus, the department may interpret that since the credit of duty paid on the raw material has been availed (though by some other person), the compounded levy scheme is not applicable. This interpretation may scrap out the compounded levy scheme.

Further, in this case, the duty has been paid by the job worker on the cold rolled patta patti under compounded levy scheme. These patta pattis are further used in manufacture of the utensils which also suffer the excise duty. Thus, the duty is levied at the two stages of the same product without the facility of Cenvat Credit thereupon. Thus, if we see logically then there is no harm of taking cenvat credit by Utensils manufacturer and manufacturer of SS patta patti operating under Compounded levy scheme. The Government is getting duty twice on the same goods.

If the job work is not allowed to units operating under special provision of compounded levy under notification 17/2009 then the option lie with utensils manufacturers to pay duty @ 1% without Cenvat credit.

Category II:-

Those who carry the entire process of the manufacture of utensils in the same factory, procure the duty paid SS flats that are subject to the process of hot rolled and cold rolled. Then circles are manufactured which are used in manufacture of utensils. Prior to this Budget of 2011, these units were not allowed to take the Cenvat Credit if these were operating under compounded levy scheme. Since the final product utensils and circles used in the manufacture of utensils were exempt duty liability was there on the patta patti. So, if the duty was paid by such manufacturers on patta patti under compounded levy; no credit was allowed. In the same case, if the duty was paid on the patta patti under normal scheme, the credit was allowed on the SS flats.

After Budget, 2011; these units will have no option other than to exit from the compounded levy scheme. In these cases, since the final product utensils have become dutiable, all the intermediate products will get exempted by virtue of notification no. 67/95-CE. So, when the duty is to be paid on utensils, then either the patta patti units will come out of compounded levy scheme or the utensils manufacturer will start taking the credit of SS flats.

Category-III:- These small units are purchasing the Stainless steel patta patti and using them in manufacture of utensils. The patta patti manufacurter are operating under compounded levy scheme. Thus these units will not get the duty paying documents and such units has to opt for paying 1% duty in cash. Moreover, as these units are very small and hence they will be eligible for SSI exemption under notification 8/2003-C.E dated 1.3.2003.

Before parting:-

Thus, the levy of excise duty on the utensils has direct impact on the compounded levy scheme which is not considered in the Finance Bill, 2011. This may be the reason of initiation of new era of litigation.