INDIRECT TAXES

- VINAY KUMAR SHRAFF

B. Com(H), ACA, AICWA, ACS

MISCONCEPTIONS ABOUT SSI BENEFIT UNDER CENTRAL EXCISE

There are two alternative set of schemes under central excise which enables
manufacturing units to either make clearance upto a turnover of one crore under nil
rate of duty( without availing cenvat credit on inputs) or they can make clearance
upto a turnover of one crore on payment of sixty percent of normal rate of duty ( by
availing cenvat credit on inputs). These schemes are guided by notification 8/2000 &
notification 9/2000 respectively. These are both mutually exclusive schemes & a
manufacture can choose either of the two schemes. A manufacturer has to make a
declaration about his choice at the beginning of the financial year. He also has the
option not to avail the exemption & instead pay at the rate of normal rate of duty but
such option cannot be withdrawn during the remaining part of the financial year to
avail exemption under notification 8/2000. However he can opt for exemption under
notification 9/2000 during a financial year withdrawing his option to pay at normal
rate of duty or exemption under notification 8/2000. Once opted, option under
notification 9/2000 however can not be withdrawn during financial year to opt for
paying at normal rate of duty or avail exemption under notification 8/2000.
Some popular misconceptions have developed about the above benefits which are
presented below:-
Is SSI benefit ( popularly so called) restricted to SSI units only?
There is a myth prevailing that these benefits are available to SSI units only. But the
notification 8/2000 & the notification 9/2000 which empowers a manufacturer to
avail the above benefits nowhere uses the word SSI while defining the eligibility
criteria. The Central Excise Act, 1944 & The Central Excise Rules, 1944 also does
not define the word SSI.
The condition prescribed by the notification 8/2000 & notification 9/2000 for
availing the exemption is that:-
“The aggregate value of clearances of all excisable goods for home consumption by a
manufacturer from one or more factories, or from a factory by one or more
manufacturer should not exceed three crore in the preceding financial year”.
It further specifies that for the purpose of determining the aggregate value of
clearances for home consumption, the following shall not be taken into account,
namely :-
a) clearances, which are exempt from the whole of excise duty leviable thereon
( other than an exemption based on quantity or value of clearances) under any
other notification or on which no excise duty is payable for any other reason;
b) clearances bearing the brand name or trade name of another person which are
ineligible for exemption under both the above notifications;
c) Clearances of specified goods which are used as inputs for further manufacture of
any specified goods within the factory of production of specified goods;
d) Clearances of strips of plastics used within the factory of production for weaving
of fabrics or for manufacture of sacks or bags made of polymers of ethylene or
propylene.

Hence even a large scale unit which is manufacturing both excisable & non excisable
goods( or goods which attracts nil rate of duty) or a large scale unit which is
manufacturing goods both under their brand name as well as the brand name of
others are entitled for this benefit provided their sale of excisable goods or sale of
goods of their own brand is less than three crores in the preceding financial year
( This benefit will however be restricted to the goods of their own brand & will not
be extended to the branded product of others).
Let us take an example of a unit manufacturing milk & milk products like milk
powder, butter, cheese, ghee & condensed milk put up in unit containers. Milk
powder, butter, cheese & ghee attracts nil rate of duty whereas condensed milk put
up in containers attracts 16% rate of duty. In this case even if the manufacturing unit
is a large scale one but the clearance for home consumption of condensed milk put up
in containers is less than three crores in the preceding financial, than it will be
eligible for exemption described above.
A export oriented large scale unit which also sells their product in the local market
can also avail this benefit provided their sale from home consumption is less three
crores.
Moreover a large scale unit, whatever be their investment, can avail these benefits in
the first year of their operation as there is no previous year as such.

Is exemption under notification 8/2000 generally better than notification 9/2000?

The second misconception is really a error of judgement committed by the

manufacturers while making a selection between the alternative set of schemes under
notification 8/2000 or notification 9/2000. The manufacturers generally prefer to go
for benefit available under notification 8/2000 as it apparently looks attractive
because a manufacturer is not required to pay any duty upto a clearance of one crore
& also it is relatively hassle free considering the fact he is not required to obtain
registration. But it has been seen in a number of cases that they looses a substantial
sum of money if their turnover crosses the mark of one crore as they cannot avail
cenvat credit on inputs under this scheme upto a turnover of one crore. A
manufacturer should make a financial calculation, at the beginning of a financial
year, of whether any surplus cenvat credit on inputs is remaining after utilisation of
cenvat credit for making the payment of duty on turnover upto one crore, if he opts
for notification 9/2000. If any surplus cenvat credit remains it can be utilised for
paying the duty on turnover beyond one crore. The method which can be adopted to
make the above financial calculation is illustrated below:-

Illustration

Let us take for an example unit ‘A’ which manufactures an item ‘X’ attracting 16%
rate of duty. Their turnover for financial year 2001-2002 is expected to be Rs. 2.5
crores. The sale price of the above item is Rs. 25/ per unit. The raw materials, on
which cenvat credit can be availed, required for the manufacturing of above items is
P, Q, R & S. They are used in the ratio of 0.5: 0.25: 0.15: 0.15 per unit of output. The
price per unit of input is Rs. 19.50, Rs. 20, Rs 15, & Rs. 18 respectively. The rate of
duty on all inputs is 16%.

For a turnover of Rs. 1 crore no. of units sold will be Rs. 1crore/Rs. 25 i.e. 4 laks of
units.
The consumption of raw material for manufacturing of 4 lakh units will be :-
P – 4lakh units X 0.5 = 2 lakh units.
Q – 4 lakh units X 0.25 = 1 lakh units.
R – 4 lakh units X 0.15 = 0.6 lakh units.
S – 4 lakh units X 0.15 = 0.6 lakh units.

The cenvat available on the above will be :-

Rs.
P – 2 lakh units X Rs.19.5 X 16% = 624000
Q – 1 lakh units X Rs. 20 X 16% = 320000
R – 0.6 lakh units X Rs. 15 X 16% = 144000
S – 0.6 lakh units X Rs. 18 X 16% = 172800

Total Cenvat = 1260800

In the above case if the manufacturer opts for notification 9/2000 then duty which
will be required to be paid for a turnover of 1 crore will be Rs. 960000 ( i.e.1 crore X
16% X 60%.)
Which means a surplus of Rs. 300800 of cenvat credit remains after paying the duty
of Rs. 960000 on a turnover upto one crore & the surplus may be utilised by him for
paying duty on sale beyond one crore. So in this case opting for notification 9/2000 is
better.

Is cenvat credit on capital goods available under notification 8/2000?

The third misconception has arisen out of general use of term that cenvat credit is not
available under notification 8/2000. The general understanding is that cenvat credit
can not be availed on both inputs & capital goods if a manufacturer opts for
notification 8/2000. However it has been stated in the notification 8/2000 that the
manufacturer can not utilise the cenvat credit on capital goods for payment of duty
on clearances upto one crore which means that though cenvat credit on capital goods
can be availed from the beginning of the financial year itself but it can only be
utilised for the payment of duty on clearances beyond one crore.