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GST
 

CHANGES AS PER FINANCE BILL 2016 : CENTRAL EXCISE & SERVICE TAX

 

All changes in rates of duty take effect from the midnight of 29thFebruary /1st March, 2016.
 

READYMADE GARMENTS

  • Excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit) is being levied on readymade garments and made up articles of textiles falling under Chapters 61, 62 and 63 (heading Nos. 6301 to 6308) of the Central Excise Tariff except those falling under 6309 and 6310 where the retail sale price (RSP) of Rs.1000 and above or when they are sold under a brand name. This levy is regardless of the composition of the garment / article.

  • In respect of readymade garments and made up articles of textiles other than those mentioned above, the optional levy of “Nil (without CENVAT credit) or 6% (with CENVAT credit)‟ in case of garments / articles of cotton, not containing any other textile material and Nil (without CENVAT credit) or 12.5% (with CENVAT credit) in case of garments / articles of other composition, as the case may be, shall continue.

  • The tariff value for readymade garments and made up articles of textile is also being increased from 30% to 60% which shall apply to all goods mentioned in the notification No.20/2001-CentralExcise (N.T.) dated 30.04.2001.
  • Summing up
  • The present levy is an optional levy, that is domestic manufacturers will have the option to pay excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit)

  •  The levy is restricted to such articles which have RSP of Rs.1000 and above

  •  The tariff value is being revised from 30% of RSP to 60% of the RSP.
  • The levy shall not apply to retail tailoring establishments that stitch garments in a customized manner to the size and style specifications of individual customers, whether out of fabric purchased by the customer from the same establishment or fabric supplied by the customer.

  • The brand name owner, who gets the goods manufactured on his own account on job work, shall pay the duty leviable on such goods as if the goods were manufactured by him. The brand name owner (and not the job-worker) shall be required to register and comply with all the provisions of Central Excise law. Rule 4 (1A) of the Central Excise Rules, 2001 and Para 1, clause (vi) of notification No.36/2001-C.E. (N.T.), dated 26.06.2001 refers.


  • However, the brand name owner will be given the option to authorise his job-worker to pay the duty leviable on the goods. If such an authorisation is given, then the jobworker would have to obtain registration. Proviso to rule 4 (1A) of the Central Excise Rules, 2001 and proviso to Para 1, clause (vi) of notification No.36/2001-C.E. (N.T.), dated 26.06.2001 refers.

  • A unit which manufactures goods bearing the brand name of another person out of inputs or raw materials which have been purchased independently and not supplied by the brand owner, does not satisfy the definition of “job-worker” and would, therefore, have to obtain registration and discharge the duty liability.

  • In cases where the brand name owner gets goods bearing its brand manufactured from other manufacturers (normally small units) without providing the raw materials or inputs, and if the RSP is not affixed or marked on such goods when they are cleared in the course of sale from the factory of a manufacturer to the brand owner, then no excise duty would be payable by such a manufacturers since the RSP of such goods is not disclosed to them by the brand owner. However, since the process of labeling or re-labelling constitutes a process of “manufacture”, duty on the tariff value (based on the RSP) would be payable as and when the brand owner labels the goods with the RSP of Rs.1000 or above and clears them for further sale.

  • The value for computing the eligibility as well as the exemption limit for purposes of SSI exemption would be the tariff value of the goods. Explanation (C) to notification No.8/2003-C.E., dated 1st March, 2003 refers.

  • The SSI exemption for the month of March, 2016 will be Rs.12.5 lakh, subject to fulfilment of other conditions of the notification No.8/2003-C.E., dated 01.03.2003. For this purpose, notification No.8/2003-C.E., dated 1st March, 2003 is being amended suitably.

  • The eligibility for availing of the SSI exemption in 2015-16 for the month of March 2016 is that the value of clearances for home consumption from one or more manufacturer from one or more unit should not have exceeded Rs. 4 crore in the financial year 2014-15. The computation for this purpose shall be done in accordance with the provisions of Para 3A of notification No. 8/2003-C.E. For this purpose, a certificate from a Chartered Accountant based on the books of accounts for 2014-15 shall suffice.

  • Excisable goods which were produced on or before 29.02.2016 but lying in stock as on 29.02.2016 shall attract excise duty upon clearance. Manufacturers shall keep a stock declaration of finished goods, goods-in-process and inputs as on 29.02.2016 in their records duly certified by a Chartered Accountant so as to enable the manufacturers to claim CENVAT credit on inputs or inputs contained in goods lying in stock as already provided for in Rule 3(2) of the CENVAT Credit, Rules, 2004, if he so desires. No stock declaration, will, however, be required to be made to the jurisdictional central excise authorities.

  • Full exemption from Central Excise duty will be available to duty-paid goods returned to the manufacturer during a financial year up to an aggregate ceiling not exceeding 10% of the value of clearances for home consumption made in the preceding financial year. The manufacturer would be required to observe the following procedure for this purpose
  • To submit an intimation within 48 hours of the receipt of the returned goods about the value of returned goods received in his factory/registered premises;

  • To maintain proper accounts/record of the receipt, finishing operations, and dispatch of returned stock indicating the monthly and cumulative value of the returned stock received during the financial year and to produce the same as and when required.
  • This facility has been provided since it is a common practice in this industry that the duty-paid stock cleared to the wholesale dealer/retailer on consignment basis that remains unsold is returned to the manufacturer either at the end of the season or from time to time. Such returned goods are cleared either as such or after re-finishingoperations to another wholesaler or retailer for sale (often at reduced prices). The re-finishing operations could involve cleaning, ironing, re-folding, repacking or relabeling, some of which constitute “manufacture” in terms of the relevant Chapter Notes. This facility obviates the need to pay excise duty twice on the same goods.
 

GOLD JEWELLERY
  • Excise duty of 1% (without CENVAT credit) or 12.5% (with CENVAT credit) is being levied on articles of jewellery [excluding silver jewellery, other than studded with diamonds/other precious stones] with a higher threshold exemption uptoRs. 6 crore in a year and eligibility limit of 12 crore. Thus, a jewellery manufacturer will be eligible for exemption from excise duty on first clearances uptoRs. 6 Crore during a financial year, if his aggregate domestic clearances during preceding financial year were less than Rs. 12 crore. In other words, jewellery manufacturer having aggregate value of clearances in a financial year exceeding Rs.12 crore, will not be eligible for this threshold exemption in the subsequent financial year. Necessary amendments have been made in notification No.8/2003-Central Excise, dated 01.03.2003 in this regard.

  • The SSI exemption for the month of March, 2016 for jewellery manufacturers will be Rs.50 lakh, subject to the condition that value of clearances for home consumption from one or more manufacturer from one or more factory or premises of production or manufacture during the financial year 2014-15 should not be more than Rs. 12 crore. Computation for this purpose shall be done in accordance with the provisions of Para 3A of notification No. 8/2003- CE. For this purpose, a certificate from a Chartered Accountant, based on the books of accounts for 2014- 15, shall suffice.

  • Similarly, for determining the eligibility for availing of the SSI exemption from 2016-17 onwards, a certificate from a Chartered Accountant, based on the books of accounts for 2015-16, shall suffice.

  • Excisable goods which were produced on or before 29.02.2016 but lying in stock as on 29.02.2016 shall attract excise duty upon clearance. Jewellery manufacturer shall keep a stock declaration of finished goods, goods-in-process and inputs as on 29.02.2016 in their records duly certified by a Chartered Accountant so as to enable the manufacturers to claim CENVAT credit on inputs or inputs contained in goods lying in stock as already provided for in Rule 3(2) of the CENVAT Credit, Rules, 2004, if he so desires. No stock declaration, will, however, be required to be made to the jurisdictional central excise authorities.
    Further, the following simplified procedure and guidelines are being issued for strict compliance

    Registration once applied for shall be granted within two working days, along with simplified registration procedure as prescribed under Notification No. 35/2001-CE. 6
  • Further, the requirement of post registration physical verification of the premises has been also done away with in this case. Necessary amendments have been made to Notification No. 35/2001-CE for this purpose.

  • Moreover, documents being maintained by the jewellery manufacturers for State VAT or Bureau of Indian Standards (in the case of hallmarked jewellery) shall suffice for Excise purposes also.

  • The private records of the jewellery manufacturers, giving details of daily stock for his own purposes, shall be accepted for the purposes of Rule 10 of the Central Excise Rules 2002.

  • A notification, providing for an optional centralized central excise registration for jewellery manufacturers with centralized billing or accounting system is being issued under Rule 9 (2) of the Central Excise Rules, 2002.

  • Also, jewellery manufacturers will be eligible for a simplified return applicable for optional excise duty of 1%/2% without CENVAT credit under notification No.1/2011-CE, under Rule 12 of the Central Excise Rules, 2002.

  • Rule 12AA of the Central Excise Rules, 2002 provides that in case of goods falling under chapter heading 7113, every person (not being an EOU or SEZ unit) who gets jewellery made from any other person, and supplies the raw materials such as gold/silver/gemstones to the job-worker for such manufacture, the duty liability would be on such person who gets articles of jewellery made from the job worker. In such cases, the principal manufacturer (and not job worker) will be required to get Central Excise registered, pay duty and follow other compliance requirements. This will ensure that small artisans/goldsmiths are not required to take any excise registration.

  • The levy is based on self-assessment and therefore, no physical visits shall be made to registered units in the normal course.

NON TARIFF CHANGES

  • Notification No.36/2001 –(NT) dated 26.6.2001 has been amended to provide that two or more premises of the same factory which are located in a close area under the same jurisdictional excise range may be permitted to have a single excise registration.

  • Processes undertaken are interlinked

  • Proper accountal of the movement of goods is established

  • The units do not operate under area based exemption notification

  This notification comes into force on 1st March 2016.

  • Circular No.620/11/2002-Cx. dated 20.2.2002 amended to extend issuance of certificate as proof of payment of central excise duty, not only for small scale industries but also to large scale industries.
  • Limitation – section 73
    • Normal limitation extended from 18 months to 30 months
    • Limit for demands in case of suppression / frauds etc continues at 5 years
    • Penalty proceeding – section 78A
    • Penalty under section 78A shall be deemed closed when main demand has been closed under section 76 or section 78

Important changes in Cenvat Credit Rules, 2004 effective from 01.04.2016


With a view to simplify and rationalize the Cenvat Credit Rules, 2004, a number of amendments are being carried out in them.  Following are the important changes: 

(a) Wagons of sub heading 8606 92 of the Central excise Tariff and equipment and appliance used in an office located within a factory are being included in the definition of capital goods so as to allow cenvat credit on the same.

(b)  CENVAT credit on inputs and capital goods used for pumping of water, for captive use in the factory, is being allowed even where such capital goods are installed outside the factory.

(c)  All capital goods having value up to Rs. ten thousand per piece are being included in the definition of inputs. This would allow an assessee to take whole credit on such capital goods in the same year in which they are received. 

(d)  Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of „exempted service‟. This would allow shipping lines to take credit on inputs and input services used in providing the said service.

 (e)   Manufacturer of final products is being allowed to take CENVAT credit on tools of Chapter 82 of the Central Excise Tariff in addition to credit on  jigs, fixtures, moulds& dies, when intended to be used in the premises of job-worker or another manufacturer who manufactures the goods as per specification of  manufacturer of final products.  It is also being provided that a manufacturer can send these goods directly to such other manufacturer or job-worker without bringing the same to his premises.

(f)  Presently, the permission given by an Assistant Commissioner or Deputy Commissioner to a manufacturer of the final products for sending inputs or partially processed inputs outside his factory to a job-worker and clearance there from on payment of duty is valid for a financial year. It is being provided that the same would be valid for three financial years.

(g)  It is being provided that CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned. It is also being provided that where the manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance CENVAT credit not exceeding the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year. It is also being provided that CENVAT credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.

(h)   Rule 6 of Cenvat Credit Rules, which provides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, is being redrafted with the objective of simplifying and rationalizing the same without altering the established principles of reversal of such credit. 

(i)  sub rule (1) of rule 6 is being amended to first state the existing principle that CENVAT credit shall not be allowed on such quantity of input and input services as is used in or in relation to manufacture of exempted goods and exempted service. The rule then directs that the procedure for calculation of credit not allowed is provided in sub-rules (2) and (3), for two different situations.   

(ii) sub-rule (2) of rule 6 is being amended to provide that a manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal or a service provider who exclusively provides exempted services shall pay (i.e. reverse) the entire credit and effectively not be eligible for credit of any inputs and input services used. 

(iii) sub-rule (3) of rule 6 is being amended to provide that when a manufacturer manufactures two classes of goods for clearance upto the place of removal, namely,  exempted goods and final products excluding exempted goods or when a provider of output services provides two classes of services, namely exempted services and output services excluding exempted services, then the manufacturer or the provider of the output service shall exercise one of the two options, namely, (a) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services,  subject to a maximum of the total credit taken or (b) pay an amount as determined under sub-rule (3A). 

(iv)  The maximum limit prescribed in the first option would ensure that the amount to be paid does not exceed the total credit taken. The purpose of the rule is to deny credit of such part of the total credit taken, as is attributable to the exempted goods or exempted services and under no circumstances this part can be greater than the whole credit.   

(v) Sub-rule (3A) is being amended to provide the procedure and conditions for calculation of credit allowed and credit not allowed and directs that such credit not allowed shall be paid, provisionally for each month. The four key steps for calculating the credit required to be paid are :- (a)  No credit of inputs or input services used exclusively in manufacture of  exempted goods  or for provision of exempted services shall be available ; (b) Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services   shall be available; (c)  Credit left thereafter is common credit  and shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of  value of exempted goods manufactured or exempted services provided to the total turnover of exempted and non exempted goods and exempted and non-exempted services in the previous financial year;

(vi) A new sub-rule (3AA) is being inserted to provide that a manufacturer or a provider of output service who has failed to follow the procedure of giving prior intimation, may be allowed by a Central Excise officer, competent to adjudicate such case, to follow the procedure and pay the amount prescribed subject to payment of interest calculated at the rate of fifteen per cent. per annum 

(vii) A new sub-rule (3AB) is being inserted as transitional provision to provide that the existing rule 6 of CCR would continue to be in operation upto 30.06.2016, for the units who are required to discharge the obligation in respect of financial year 2015-16.     
(viii) Sub-rule (3B) of rule 6 is being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal. 

(i) Following are the other changes being made in rule 6 of the Cenvat Credit Rules: 

(i) Explanations 3 and 4 are being inserted in rule 6, sub-rule (1) so as provide for reversal of CENVAT Credit on inputs/input services which have been commonly used in providing taxable output service and an activity which is not a ‘service’ under the Finance Act, 1994.
 
(ii) Sub-rule (4) is being amended to provide that where the capital goods are used for the manufacture of exempted goods or provision of exempted service for two years from the date of commencement of commercial production or provision of service, no CENVAT credit shall be allowed on such capital goods. Similar provision is being made for capital goods installed after the date of commencement of commercial production or provision of service.  

(iii) Sub-rule (7) is being amended so as to provide that credit taken on inputs and input services used in providing a service by way of “transportation of goods by a vessel from customs station of clearance in India to a place outside India” shall not be required to be reversed by the shipping lines. It may be mentioned here that this service presently qualifies as an “exempted service” on account of Rule 10 of Place of Provision of Supply Rules. Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of „exempted service‟ by amending rule 2(e) of the rules as discussed above. Amendment in sub-rule (7) coupled with the corresponding amendment in the definition of Exempted Service is aimed at allowing credit of eligible  inputs, input services and capital goods for providing  the said service and providing Indian shipping lines a level playing field vis a vis the foreign shipping lines.

(j)  Rule 7 of the Rules dealing with distribution of credit on input services by an Input Service Distributor is being completely rewritten to allow an Input Service Distributer to distribute the input service credit to an outsourced manufacturing unit also in addition to its own manufacturing units. Outsourced manufacturing  unit  is being defined  to mean either a job-worker who is required to pay duty on the value determined  under the provisions of rule 10A of the Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined  under the provisions of section 4A of the Central Excise Act, 1944.

(k) Presently, rule 7 provides that credit of service tax attributable to service used by more than one unit shall be distributed pro rata, based on turnover, to all the units. It is now being provided that an Input Service Distributor shall distribute CENVAT credit in respect of  service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to, inter alia, the  following conditions:  credit attributable to a particular unit shall be attributed to that unit only. Credit attributable to more than one unit but not all shall be to attributed to those units only and not to all units.  Credit attributable to all units shall be attributed to all the units. Credit shall be distributed pro rata on the basis of turnover as is done in the present rules.  
 
(l)  It is also being provided that an outsourced manufacturing unit shall maintain separate account of credit received from each of the input service distributors and shall use it for payment of duty on goods manufactured for Input Service Distributor concerned. The credit of service tax paid on input services, available with the Input Service Distributor as on 31st of March, 2016 shall not be distributed to an outsourced manufacturing unit.  Further,  provisions of rule 6 of  Cenvat Credit Rules, 2004 relating to reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, shall apply to the units  availing the CENVAT credit distributed by Input Service Distributor and not to the Input Service Distributor. 

(m) Rule 7B is being inserted in Cenvat Credit Rules, 2004 so as to enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. It is also being provided that a manufacturer having one or more factories  shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, which receives inputs under cover of an invoice towards the purchase of  such inputs.  Procedure applicable to a first stage dealer or a second stage dealer would apply, mutatis mutandis, to such  a warehouse of the manufacturer. 

(n) Presently, an invoice issued by a manufacturer for clearance of inputs or capitals goods is a valid document for availing CENVAT credit. It is being provided that an invoice issued by a service provider for clearance of inputs or capitals goods shall also be a valid document for availing CENVAT credit.

(o)  Rule 9A of the Rules is being amended to provide for filing of an annual return by a manufacturer of final products or provider of output services for each financial year, by the 30th day of November of the succeeding year in the form as specified by a notification by the Board. 

(p) The existing sub- rule (2) of rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said subrule is being omitted. Now, whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.