MARCH 02, 2015

By R Subramanya, Advocate

RULE 6 Matrix is back!!. Notification 6/2015-CE(NT) dated 1-3-2015, has silently placed a provision by amending the Rule 6 of the Cenvat Credit Rules, 2004, by including the non-excisable goods into its fold. The explanations inserted, explains

"4. In the said rules, in rule 6, in sub-rule (1), after the proviso, the following Explanations shall be inserted, namely: -

"Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory.

Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder.".

What is ‘non-excisable goods', nobody knows. It can only be presumed that Excisable goods means the goods which are covered under the central excise tariff, and what is not chargeable to excise duty is exempted goods, and anything other than excisable goods and exempted goods are non-excisable goods, and can fetch some value would be called ‘non-excisable goods'.

But, non-excisable goods can be anything under the sky. Therefore, anything cleared outside the factory for a consideration, would be required to reverse 6% of the value of such non-excisable goods!!

For eg. The following can be treated as non-excisable goods and the manufacturers may be required to reverse 6% on such goods.

1.   Any factory would have lot of junk lying in their factory, which for the purpose of cleaning if removed from the factory, would attract 6% reversal on the value of such un-wanted junk.

2.  Old and used office furniture, old vehicles, left over slag etc would also continue to attract 6% reversal.

3.  Factories which generate unwanted hazardous chemicals as waste, would also attract 6% reversal.

4.   Left out construction material, tools and tickles, which is auctioned for some value during cleaning of the factory, when removed would also attract 6% reversal.

In other words, there is no exemption in central excise if you are availing Cenvat credit. Either you pay duty, or if cleared as exempted or non-excisable goods, you need to pay by reversing 6% on value of such unwanted stuff.

This explanation is going to open a new Pandora box of fresh litigation, as to what will constitute ‘non-excisable goods sold for a consideration', for the purpose of Rule 6.

Well, it does not stop there. There is another explanation which talks about the valuation. It reads as,

"Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder .".

The already under-staffed excise department is not even able to properly reach out to conduct audit of excisable goods at the regular taxpaying units, and if such an explanation is required to be followed by invoking valuation provisions on such non-excisable goods, this would have far reaching affect.

before parting ...

What can be the guidelines to whether any goods are non-excisable, and where to classify the same. What if some factory fails to reverse. Are we going to penalise or prosecute them. How can one decide whether the non-excisable goods being cleared from the factory are "the non-excisable goods for the purpose of Rule 6". Are we going to have another schedule of non-excisable goods in the tariff.