MARCH 08, 2012

Dear FM, Pl Sanction LTU For Hyderabad

By C T Krishna Murthy, Advocate

RETURN of defective or damaged goods etc for EOU to DTA:

Condition No. 6 of Notification No. 22/2003 CE dt 31.03.2003 provided that the user industry has to follow the procedure laid down in Central Excise (Removal of Goods at Concessional Rate of Duty) Rules, 2001 for procuring the indigenous material by EOU from DTA. In these rules as per the Proviso to Rule 6 the defective goods can be brought back to DTA and shall be added to the non-duty paid stock of the DTA manufacturer.

This condition is deleted by Notification No. 29/2007 CE dt. 06.07.2007. Two months earlier CBE&C issued Circular No. 851/9/2007 CX dt. 03.05.2007 provides for removal of goods without payment of duty from DTA manufacturer to EOU. This circular is issued under sub-rule (2) of Rule 20 of Central Excise Rules and warehousing provisions are made applicable for such procurement. It is not known as to why this circular is issued two months earlier to the deletion of the condition.

However, with the deletion of the condition 6, the Central Excise department is insisting for payment of duty on the rejected goods while returning from EOU to DTA. A suggestion to make necessary amendment in the said circular is required to overcome the gap created on account of the deletion of the condition 6 of the Notification. In this connection it may brought to the notice to the Government that Circular No. 60/99 CUS dt 10.09.1999 provides procedure for replacement of goods exported or imported and found damaged or defective etc.

++ Interest on Inter Unit Transfer: The Supreme Court in CCEx, Pune Vs SKF India Ltd 2009-TIOL-82-SC-CX held that the interest is chargeable on the differential duty arising on account of escalation of price. This case relates to sale transaction between a seller and a buyer. This judgment is being followed by the department for charging interest even on inter-unit clearances of goods of a manufacturer by following CAS-4 costing for arriving at the assessable value under Rule 8 of the Valuation Rules as per Circular No. 692 dt 12.03.2003.

This judgment cannot be made applicable to inter-unit transfers for charging interest, as Supreme Court has not considered a case on differential duty arising on account of Board’s instructions, Circulars etc. The attention of the Government may brought to the earlier proviso under Section 11AB now the non-obstante clause (a) under sub-section (3) of Section 11AA. In pari materia both are same. The principle carved out in the non-obstante clause (earlier proviso to Section 11AB) is same as in the case of inter-unit clearances by following CAS-4 costing as per the Board’s instructions. Hence, a suitable amendment is required in present Section 11AA of the Central Excise Act, 1944.

++ A suggestion is made to bring Hyderabad city also extending the benefits of Large Taxpayer Units in Central Excise, Income Tax, Service Tax provisions. As otherwise, the units, which are eligible for the LTU benefits, are put to disadvantage compared to the units enjoying these benefits in the specified cities.