TIOL-DDT 116
17 05 2005
Tuesday

The Government has silently come up with some major changes in the credit rules.

1. Capital goods cleared as scrap – pay duty on transaction value. As per Rule 3(5), when inputs or capital goods are removed as such, an amount equal to the credit taken is to be paid back. This means that even when a 20 year old machine is sold, the manufacturer has to pay back the amount of credit taken 20 years ago. He will not have records to show how much credit he had taken. Earlier there was a system of allowing depreciation. Now the Government notification stipulates that if the capital goods are sold as scrap, an amount equal to the duty on the transaction value has to be paid. But is removal of scrap removal of capital goods as such?

2. Inputs sent for job work to manufacture intermediate products. Under Rule 4(5a), credit is allowed even if the inputs or capital goods are sent for job work. Now it will be allowed even when they are sent for the manufacture of intermediate goods necessary for the manufacture of final products. Is this a change in policy? Will credit be allowed on explosives used in mines? Is JK Udaipur overruled by Government?

3. Clearances from job worker: As per Rule 4(6), Commissioner can permit clearance of final products from the job worker’s premises without bringing them back to the original factory. Now Assistant Commissioner/Deputy Commissioner can give this permission.

4. Dutiable and exempted final products- common input – fuel. As per Rule 6(2), if common inputs are used for manufacture of dutiable and exempted goods, the manufacturer is required to maintain separate accounts or pay 10% or reverse credit in certain cases. These restrictions do not apply to inputs intended to be used as fuel. Now the words “except inputs intended to be used as fuel,” are removed from the rule. What does this mean? If one of your inputs is a fuel and you have one exempted product, you are doomed, you can’t take credit! Is this the intention of the Government? We will hopefully know soon.

5. No Credit on inputs used exclusively in exempted goods. Government has added an explanation to Rule 6(3), “For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and inputs services used exclusively for the manufacture of exempted goods or exempted services.” This issue has an interesting history which will be carried in tomorrow’s DDT.

NOTIFICATION NO. 27/2005-Central Excise (N.T.) dated the 16th May, 2005

Monthly/quarterly returns – proforma changed again

Unpardonable waste of paper

The great babus of North Block who use only government stationery have absolutely no idea as to the cost of paper. The CBEC must have been responsible for a large chunk of forest wealth being depleted. The frequent notifications and amendments they bring out cost this nation tons and tons of paper. The latest contribution to the destruction of forests is the new form for monthly returns.

The good old RT -12 returns survived for more than a quarter of a century, of course with a few amendments. Then came the ER-1 from 26th June 2001. This lasted for a little over two years when the form was changed on 15th September 2003. The 2003 ER-1 could not complete a full year before it was changed on 4th August 2004. And this return could be used for exactly a month when by notification No. 25/2004 dated 27.9.2004, the form was again changed. And in less than a year the form is again changed now.

Perhaps the Government does not realise the amount of trouble it causes the assessees to adapt to the new forms and that too in such unfailing frequency.. For those using computers to generate the forms, it is a difficult task to change the software and for large corporates who use the same software in all their units, it is pandemonium for some time.

There is another tragic angle to this. In many cities you will find small, poor traders printing these forms and selling them to SSI units and other small manufacturers, for a small profit. Whenever the Government changes the proforma, all the printed materials lying in stock with these small traders become useless and they incur heavy losses, promoting them from poverty to starvation.

Even large units would get their stationery printed for a year or two and all that would go waste now. Perhaps there should be some law that whenever the Government changes the proforma, the forms have to be supplied for a year at Government cost. It is sheer adhoc callousness and lack of concern for the assessees that make our babus behave like this. Only those officers should be posted to the Board who have at least one close relative running a small industry and paying excise duty. Only then they will understand the agony they are able to cause in their great notification manufacturing and repairing exercise.

Now the ER-1 and ER-3 (for SSI units) are changed, basically to add a few more items on which the Government wants to collect information. Now the assessees are to give break up of cenvat credit taken on the basis of invoices issued by manufacturers and dealers. So they have to enter these credits in separate accounts! There is a column in which the assessee is required to show, “Credit utilized for payment of duty on services”. Is there any duty on services? Board should know!

And what is ER-3. It is the quarterly return to be filed by assessees availing exemption based on value of clearances. But what is that exemption? Is the Board not aware that Notification No. 9/2003 is rescinded? Now who is to file the ER-3? Does the Board know any assessee who is required to file the ER-3?

And incidentally, is the Finance Ministry not aware of the enactment of the Finance Bill 2005? Col 5 of Sl. No.5 of this new form mentions, ADE levied under clause 85 of Finance Bill, 2005. Hasn’t the Finance Bill become the Finance Act?

NOTIFICATION NO. 26/2005-Central Excise (N.T.) dated the 16th May, 2005

Foreign Trade Policy

No sale of pepper and pepper products in DTA by EOUs. All other products which are freely importable can be sold by the EOUs in the DTA.

NOTIFICATION NO. 2 (RE-2005)/(2004-2009), Dated: May 13, 2005

Until Tomorrow with more DDT

Have a Nice Day.

Mail your comments to vijaywrite@taxindiaonline.com