Area-based exemption - Double benefits theory may put exports in double jeopardy !
APRIL 11, 2007
By Santosh Hatwar
THE Board's Instructions dated 8.12.2006 and 03.04.2007 on the so called double benefit will entangle the field formations in myriad litigations rather than clarify anything at all. You may wonder what harm a clarification will do. To know it all please proceed to read further:
The area-based exemption notifications provide for cash refund of duty paid through PLA. The Law ministry says that since the amount of duty paid through PLA is refunded to the assessee, rebate of such duty cannot be granted because it held that the duty amount subsequently refunded cannot be treated as duty paid. It also clarified that refund of duty paid through PLA is the essence of such area based exemption notifications. Based on the Law Ministry's clarification, CBEC issued an Instruction dated 8.12.06 clarifying its stand and directed the field formations to take appropriate action which includes recovery of such erroneous rebates.
When excisable goods are exported by the units availing the impugned area based exemption, they are eligible to claim rebate of duty paid by them. Obviously they will claim rebate of the original duty paid and this includes the element of duty subsequently refunded to them also, which as per Law Ministry/CBEC amounts to double benefit to that extent. It should be noted that the element of duty paid through Cenvat Credit A/c by the exporters is still eligible for rebate and the Department cannot deny this taking shelter under this CBEC clarification. Unfortunately the CBEC clarification does not explicitly clarify that rebate of this element of duty paid through Cenvat Credit A/c is available. The obvious result one can expect from the field formation is denial of such rebate as well.
The Board's Instruction dated 03.04.2007 clarifies that the duty paid (including the element of cash refund) by the units availing the benefit of these area based exemption notification is available to them as input credit to other manufacturers in India. These other manufacturers are eligible to claim the rebate under Rule 18. The question to be answered at this juncture is: "Is the Board referring to the input stage rebate under this Rule or rebate of duty paid by these manufacturers on their final products or rebate claims filed by merchant exporters situated elsewhere (in other parts of the country) and engaged in purchase of goods from the units availing these exemptions"? If it is rebate of duty paid on the final products then there is no problem but if the rebate claim is for input stage rebate or if the rebate claim is from a merchant exporter located elsewhere then obviously there is a problem because they (the other manufacturers and/or the merchant exporters) will claim the rebate inclusive of the amount equivalent to the cash refund as well. Is it not double benefit? The Board does not think so.
Further, the invoices of the units availing area based exemption notifications mentions the entire duty initially paid by them, these units would get reimbursement of the invoice price (which is inclusive of this cash refund element) from their customers (whether in India or outside India) which again is a double benefit irrespective of what the Law Ministry or the CBEC says.
Therefore the clarifications given by the CBEC through their letters dated 8.12.2006 or 03.04.2007 does not provide any remedy to bar the double benefit. On the contrary they will hamper the process of rebate claim of the duty element paid through Cenvat Credit A/c which is rightfully due to those units availing area based exemptions.
At this juncture it is pertinent to note that when you provide a deeming provision in the notification to say that the amount equivalent to cash refund is also available as cenvat credit to other manufacturers/merchant exporters and further clarify that such other manufacturers/merchant exporters are eligible for rebate of such duty paid (though it is not explicit in the Instruction dated 03.04.2007, it is still implied by their clarificatory Instruction that they are eligible for such rebate) then you can't cry wolf that there is double benefit for these units availing area based exemption notifications.
The deeming provision in the area based exemption notifications (refund of duty paid in cash to the unit availing such benefit and also allow cenvat credit of the entire duty paid including the cash refund element to the purchaser of such goods situated elsewhere in the country) naturally throws up such anomalies and trying to rectify one anomaly will lead you to another. Better leave it at that rather than complicate matters.
Therefore, in the best interest of trade it would be better if the Board withdraws both the Instructions and maintains status quo on this issue.
(The author is working with a leading Consulting firm)
