(ieema)-customs, excise, and cst

8/13/2019 (IEEMA)-Customs, Excise, And CST

1/24


2/24


3/24


4/24

4

IEEMA PRE-BUDGET MEMORANDUM 2013-14

CRITICAL ISSUES & SUGGESTIONS:

Page no.s

INDIRECT TAX:

Chapter 1: Customs, Central Excise and Central Sales Tax- Policy Issues 05-13

Customs, Central Excise and Central Sales Tax - Procedural Issues 14-18

Annexure I: Instances of inverted customs duties and anomalies 19-23

Annexure II: Note on customs-credit scheme, proposed by IEEMA 24


5/24

5

INDIRECT TAX:Chapter 1: Customs, Central Excise and Central Sales Tax - Policy Issues

(1) Import duty on Mega / Ultra Mega and expansion projects vide notification49/2012-Customs dtd. 10 th Sept. 2012 - Cost advantage of 4.7% only to domesticsuppliers:

The Government of India, with an intention of providing legitimate support to the indigenouspower plant equipment manufacturing industry, imposed 5% basic customs duty, 12% CVDand 4% SAD, on imports of equipment for Mega / Ultra Mega and expansion projects, witheffect from 19 th July 2012.

The domestic industry is grateful to the government for this initiative. However, the 14% costdisadvantage suffered by the domestic industry (as estimated by the Committee underchairmanship of Member-Industry, Planning Commission) has not been completelyaddressed. The imposed duty structure would compensate the domestic suppliers only to theextent of 4.7%.

IEEMA Suggestion:

To bridge the gap, it is proposed that the excise duty paid by the domestic manufacturers berefunded by the government as deemed export benefits.

(2) Interest on Excise Duty for Differential Price:

The buyers, mainly power utilities, insist on determination of final price of equipment basedon variation in cost of raw materials, through a price variation formula that is based on priceindices. The price indices are normally published after 2-3 months of the supply is made.Some prices are sourced from international sources like London Metal Exchange (LME);where availability is delayed by a month e.g. Copper prices. Buyers verify the supplementaryclaims and inform the suppliers about acceptance.

Considering the above factor, when the prices are higher than what were billed earlier, themanufacturers raise supplementary invoices to their customers, demanding the differentialprices. The manufacturers also promptly deposit the excise duty on differential price at the

time when supplementary invoice is raised. However, excise commisionerates issue showcause notices demanding interest from the date of the original invoice, on the excise dutypaid as per the supplementary invoice raised. Manufacturers are suffering due to HonbleSupreme Court judgment in the civil appeal of M/s SKF India Ltd. vs. CESTAT, Pune; whichhas resulted in a huge financial burden to the industry.

In this context, the Honble High Court of Karnataka had passed a favourable Order bydistinguishing the SKF order of the Supreme Court. The excise department filed a specialleave petition against the Karnataka High Court, which was dismissed by the Supreme Court.Therefore, the valuation rule should be amended, so that, no demand is raised for suchcases.


6/24

6

IEEMA Suggestion:IEEMA requests to make suitable amendment to the sub rule 4 of Rule 7 of Central ExciseRules 2002, thereby replacing the month for which the duty is determined by the month inwhich the duty is determined; so that, interest is not made payable in case of provisionalinvoice due to delay in availability of price indices.

(3) Merit Rate of Excise Duty for Power Generation, Transmission & DistributionEquipment:

The power sector is one of the most significant infrastructure sectors. However, the electricalequipment supplied for critical infrastructure development of the country attracts the same

level of excise duty as also applicable to many FMCG and luxury products.IEEMA Suggestion:

Till the time a uniform GST is implemented, a merit rate of 6% excise duty should be imposedon all products supplied to power generation, transmission & distribution projects. This wouldnot lead to any revenue loss to the government, since lowering of excise duty would lead toreduction of project cost, thereby, enabling execution of more such projects within theavailable resources. Finally, this would also lead to lowering of the cost of electricity.

(4) Excise Duty Exemption on Steel / Cement used in construction of Mega / UltraMega Power Projects:

Notification number 12/2012-CE, dated 17.03.2012, provides for exemption from payment ofexcise duty and is applicable to all goods falling under any chapter. This excise dutyexemption is available only when there is a corresponding customs duty exemption.However, the customs notification number 12/2012 (serial number 507) is applicable only tochapter 9801. As the goods like structural steel / cement used in the construction, are notcovered under the chapter 9801, the intended exemption is not available to such goods.

IEEMA Suggestion:

If duty exemption is made available to all goods supplied to a power project, cost of powerwould come down significantly. Hence, the sr. no. 507 appearing under chapter 9801 of the

notification number 12/2012-Cus, be amended to read as any chapter .(5) Concessional Rate of Excise Duty for Motor Starters, Agricultural Capacitors

and Submersible Flat cables:

Motor Starters, Agricultural Capacitors and Submersible Flat Cables, upto certain capacities,are mainly used in the agriculture sector and attract an excise duty of 12%. However, thefollowing other products mainly used in agriculture sector are wholly or partially exemptedfrom excise duty in the following manner:

(a) Specific goods intended to be used for the installation of cold storage, cold room orrefrigerated vehicle for the preservation, storage or transportation of agricultural

produce Notification no. 12/2012 CE dtd. 17.3.12 (Sr. No 232) NIL excise duty.


7/24

7

(b) Tractors - Notification no. 12/2012-CE dtd. 17.3.12 (Sr. no. 277) NIL excise duty.(c) Power driven pumps primarily designed for handling water Notification no. 12/2012- CE dtd. 17.3.12 (Sr. No 235) 6% excise duty.

IEEMA Suggestion:

The excise duty rate of following products, which are mostly used in agriculture sector, bereduced to 6%:

1. Motor Starters for agricultural use / handling water (used for motor power rating up to7.5 kW / 10 HP or up to Relay range 14-23A etc.)

2. Agricultural Capacitors up to 6 kVAr

3. Submersible Flat Cables up to 6 sq. mm. cross section area.

(6) Duty Exemption on CRGO Electrical Steel:

Cold Rolled Grain Oriented (CRGO) electrical steel is a critical and indispensable rawmaterial for manufacturing of transformers. The consumption of CRGO electrical steelis estimated to be at 11.5 Lacs MT for the entire 12 th Plan period and 13.5 Lacs MT for theentire 13 th Plan period. However, as there is no indigenous manufacturing of CRGO electricalsteel, the entire requirement has to be imported from 12 manufacturers globally.

IEEMA is thankful to the Government for removing the Special Additional Duty (SAD) of 4%imposed on prime CRGO electrical steel. There is an urgent need for setting up of indigenousmanufacturing capacity to meet the huge demand for transformation capacity.

IEEMA Suggestion:

Import of CRGO electrical steel be allowed at NIL duty till such time the country sets upindigenous manufacturing and achieves self-sufficiency in its production.

(7) Central Sales Tax / Value Added Tax Exemption on Mega Power Projects:

Imports from foreign suppliers do not attract any CST/VAT, whereas, the domestic suppliesattract CST at the rate of 2% and VAT at the rate from 4% to 14.5%. An office memorandumissued by the Ministry of Power under reference F. No. A-108/98-IPC-I dated 31.05.1999-Clause 2, mentions that the State Governments have been advised to exempt supplies madeto Mega Power Plants from levy of Sales Tax and any other local levies. Accordingly, theSales Tax on domestically manufactured capital goods, the local levies and Octroi would notbe considered for the purpose of evaluation of bids, irrespective of the fact whether the StateGovernments provide this exemption or not. However, some of the project authorities andcustomers do not accept this de-loading principle (regarding sales tax, local levies & Octroi)and evaluate bids taking these levies, including CST into account.


8/24

8

IEEMA Suggestion: Pending the imposition of SAD @ 4% as mentioned above, Mega / Ultra Mega PowerProjects should be mandatorily exempted from the levy of CST/VAT and this should beprovided in the CST Act itself.

Alternately, CST/VAT component, if any, should be excluded for the purpose of bidevaluation as imports from foreign vendors do not attract these taxes.

(8) Supply of Goods to SEZ Units/Developer/Co-Developer by Sub-Contractors/Sub-Vendors:

As per Section 8(6) of the Central Sales Tax Act, 1956, no tax under CST Act shall bepayable by any dealer in respect of sale of any goods made by such dealer, in the course ofinter-State trade or commerce to a registered dealer for the purpose of setting up, operation,maintenance, manufacture, trading, production, processing, assembling, repairing,reconditioning, reengineering, packaging or for use as packing material or packingaccessories in an unit located in any special economic zone by the developer of the specialeconomic zone, if such registered dealer has been authorised to establish such unit todevelop, operate and maintain such special economic zone by the authority specified by theCentral Government in this behalf. Further as per Section 8(8), the above exemption fromCST is allowed provided Form I is issued by such SEZ Unit/Developer to the dealer sellingsuch goods to him. Further as per Section 26 of SEZ Act read with Rule 10 SEZ Rules, suchexemption from CST shall also be allowed to sub-contractors. Though in principle such CSTexemptions have been permitted to sub-contractors under SEZ law, however there is nocorresponding provision in the CST Act to grant such exemption to sub-contractors/sub-vendors supplying goods to such SEZ unit/developer/co-developer.

IEEMA Suggestion:

The Central Sales Tax Act 1956 may be modified suitably and a provision similar to Section5(3) be inserted in CST Act with provision to issue Form I to both the main contractor and thesub-contractor by such SEZ unit/developer/co-developer, so that, exemption from CST canbe availed by sub-contractors/sub-vendors also.

Further certificate 1 and 2 in Form I may also be modified suitably in line with modifiedprovisions.

(9) Denial of Excise Duty Exemption to Sub-Contractors under CE Notification108/95-CE., dated 28.8.95:

Notification number 108/95-C.E dated 28.08.95 provides excise duty exemption to goodssupplied to specified international organisations. However, this benefit is available only to themain contractor and not to the sub-contractor as per the Judgment of CESTAT in the case ofBird Machines.

The same benefit is available to sub-contractor under 12/2012 CE dated 17.03.2012 basedon CESTAT Rulings in the case of CST Limited.


9/24

9

The projects funded by such organisations are generally large in magnitude and cannot beexecuted by a single contractor without sub-contracting at least a part of the work. In somecases, it requires several sub-contractors to execute the main contract. Denial of benefits tothe sub-contractor(s) takes away most of the benefits of the notification number 108/95-C.E,dated 28.08.95 and defeats the very purpose of the notification itself.

IEEMA Suggestion:

A clarification be issued on notification number 108/95-C.E dated 28.08.95 so that the sub-contractors supplying to the projects covered under the said notification also get the benefit ofexcise duty exemption.

(10) Amendment in Rule 14 of Cenvat Credit Rules 2004:

The amendment in Rule 14 of Cenvat Credit Rules is a bold step in the right direction.However, the proposed amendment of charging interest only on the utilised portion ofwrongly availed credit is effective from 1 st April, 2012 only whereas it should be withretrospective effect as if it was there in the Cenvat Credit Rules since inception.

IEEMA Suggestion:

This amendment should be made with retrospective effect, so that the pending cases wouldautomatically get resolved.

(11) Exemption Notifications:The exemption notifications issued by the government are of two kinds viz. conditional andunconditional. In case of conditional notifications, the manufacturer is required to pay anamount of 5% of sales price in lieu of central excise duty. There is no provision in law/rulesto recover the said amount from the customer. Therefore, it becomes a straight financial lossto the manufacturer.

IEEMA Suggestion:

It is recommended that in case of all conditional notifications, the law/rules should beamended in such a way that the manufacturer is directed to pay the central excise duty at

appropriate rates at the time of removal of the goods and the recipient of goods be allowed toclaim refund of the said amount on the basis of Duplicate for Transporter copy of the invoiceof the manufacturer. This is in line with the lodging of claim with DGFT for refund of terminalexcise duty on supplies under deemed export.

In short, since all the exemptions are for the benefit of the end user, the end user aloneshould claim refund and all such clearances by the manufacturer should be treated as normalclearances on payment of duty at appropriate rates.

(12) Classification of Product coverage of definition:

The Central Excise Tariff does not contain any definition of Pump-set (Chapter Heading

8413). Particularly, in case of pump manufacturers, this creates lot of difficulties. As per the


10/24

10

established Law, a pump-set consists of (i) Mono Block Pump-Set and (ii) Bare Shaft Pump,Prime Mover (either Engine or Motor) and Coupling. Due to technological developments aswell as because of the changing needs of the customers due to environments and usages,the manufacturers develop the product but are unable to classify the same appropriatelybecause of the limitations of the definitions in the Tariff. For example, a pump can be run byGas Turbine, Vacuum Turbine, Water Turbine, can have variable frequency drives toautomate the on/off conditions of the pump, it requires piping, valves, software etc. to make ita complete set/system for the desired use by the customer. These developmentssubstantially bring in reduction in consumption of energy, wastage of water, help theenvironment and increase the efficiency of the product as well as multiply the benefits of itsusage. This becomes a national saving.

IEEMA Suggestion:

In view of this, the definition of the product should be enlarged to cover all such aspectswhich will eliminate litigation for a simple dispute on classification of the product.

(13) Revised norms for execution of Bond and Bank Guarantee under AdvanceLicense and EPCG Schemes:

Clause (c) of serial no. 3.2 of customs circular no. 58/2004, dated 21.10.2004, stipulates thatthe license holder cannot be given exemption from submission of bank guarantee if he ispenalized under the provisions of the Customs Act, 1962, the Central Excise Act, 1944, theForeign Exchange Management Act (FEMA), 1999 or the Foreign Trade (Development andRegulation) Act, 1992 during the last three financial years. In view of this, the Customs

Authorities insist upon a letter from jurisdictional Central Excise Department seeking detailsof pending cases and penalties levied.

Industries normally have cases pending with CESTAT, appeals and courts at various levels. Almost every industry is bound to have cases which primarily and most importantly arise dueto interpretation of law.

It is popular knowledge that the issues related to interpretation of law are normally resolvedby CESTAT or High Court or Supreme Court or CBEC which is a routine process of law andtherefore, it is against the interest of the common public as well as against the principle oflegislature if Customs Authorities insist upon submission of bank guarantee only because ofthis. Similarly, the deciding authorities levy token penalties because of procedural lapses. Ifthe penalties are for willful mis-declaration of facts or for suppression of facts or forintentionally depriving the government of its legitimate dues, Customs Authorities have todisallow exemption for submission of bank guarantee. However, in case of token penaltieswhich the deciding authority has to levy because of the provisions of law, exemption fromsubmission of bank guarantee has to be granted.

(14) CENVAT credit on High Speed Diesel (HSD) and Light Diesel Oil (LDO):

HSD and LDO should also be made as eligible inputs for the purpose of availing CENVATcredit.


11/24


12/24

12

(19) Interest on Pre-Deposit of Duty Demanded, Penalty Levied etc. while filingAppeal:

There is no provision in Central Excise Act, 1944 which allows interest on pre-deposit if thematter is decided in favour of the appellant. If the matter is decided against the assessee theamount of pre-deposit is adjusted against the demand. In case demand is confirmed,assessee is liable for the interest under Section 11 AB for interest on duty demanded.

IEEMA Suggestion:

Amendment may be brought to provide for interest on pre-deposit, if the appeal is allowedfully. If the same is allowed partly the interest be paid on the amount of pre-deposit as in

excess of confirmed demand.(20) Automatic expiry of stay order if appeal is not disposed of within the period of

180 days:

The Sub-Section 2(A) of Section 35C of Central Excise Act 1944 read with first provision,stipulates an appeal where a stay order has been made to be decided within a period of onehundred and eighty days. Second provision provides that if appeal is not disposed within thisperiod the stay shall stand vacated.

Since disposal of appeal is not within control of assessee as such the vacation of stay wouldresult in the very undue hardship on account of which stay was granted. Supreme Court in

CCE Vs. Kumar Cotton Mills 2005 (180) ELT -434 (S.C) have held that CESTAT beingappellate authority is competent to extend the stay till disposal of appeal. From practical pointof view the said provision is resulting in filing of an application for extension of stay which isnormally granted.

IEEMA Suggestion:

Thus the provision, which is resulting in unnecessary routine formality, additional paper workand wastage of CESTAT time, may be repealed.

(21) Modalities for Transfer of Cenvat Credit under rule 10 of Cenvat Credit Rules,2004:

Central Excise Act/Cenvat Credit Rules does not contain any explicit provision for transfer ofCenvat credit, when a manufacturer or provider of output service shifts his factory or transfershis business on account of sale, merger, amalgamation, lease or transfer to joint venture,with a specific provision for transfer of liabilities of such business. The rule only requires thatthe inputs and / or capital goods transferred are duly accounted for at the new location to thesatisfaction of the Deputy / Assistant Commissioner of Central Excise.

However, Central Excise Range officers having jurisdiction over factory / premises oftransferor unit insist that their approval be obtained before stock of inputs and / or capitalgoods is transferred to the new location / owner and also threaten to initiate legal action.Even if prior approval is requested by the transferor unit, there is delay in giving the same


13/24

13

and as a result of it; assessee has to pay duty in cash even if the transferred Cenvat credit islegitimately available for utilization.

IEEMA Suggestion:

A provision may be introduced to clarify and credit should automatically be treated astransferred.

(22) Increase in Abatement Rate for MRP Based Excise Duty:

Abatement on electrical goods under chapter 8536 is 38% at present. Since the supply chainis long and some discount needs to be passed on to the buyers in view of stiff competition,

the manufacturers of electrical switchgears are forced to bear the duty incidence.IEEMA suggestion:

Abatement on electrical goods under chapter 8536 should be raised to 50%.

(23) Amendment to CST Act - Statutory forms:

Amendment made to Rule 12 of the CST Act makes it mandatory to issue/collect singledeclaration form all transactions of sale for each quarter of the year.

Due to the amendment, the dealer has to collect four forms for each year as against single

form which was in vogue prior to 01.10.05. This amendment has created lot of hardship andincreased the non value added work of all dealers. The dealers are also harassed for non-submission of forms, whereas, this is also a fact that many State Governments do not havesufficient stock of the forms viz., F forms/C forms, E1/EII forms etc.

IEEMA suggestion:

The amendment made to Rule 12 of the CST Act be withdrawn or the statutory forms begenerated online in place of physical forms.


14/24

14

INDIRECT TAX:Chapter 1: Customs, Central Excise and Central Sales Tax - Procedural Issues:

(1) CENVAT Credit of Excise Duty / CVD paid on Capital Goods:

In terms of Rule 4(2) of the CENVAT Credit Rules, 2004, maximum 50% CENVAT credit isallowed in respect of capital goods in the first year and the balance there after. As a result, alot of time and effort is spent in terms of year of entry, amount of credit available in each yearetc. Apart from the cost involved in such tracking, this also leads to errors and consequently,long-drawn disputes/litigation with the Department.

IEEMA Suggestion:

For better cash flow management and to reduce the administrative process, full credit may beallowed in the first year itself for all types of assessees. This would be in line with theprovisions on CENVAT credit in respect of inputs.

(2) Use of EDI System for Clearance of Rebate Claim:

For claiming excise rebate, the Excise Department asks for signed copy of Shipping Bills and ARE 1 issued by the Customs Department. These documents are not promptly released bycustoms; as a result, the exporter's rebate claim is not filed immediately after sailing of vesselcarrying the exported cargo.

IEEMA Suggestions:

Since EDI system is implemented, it is suggested that the Excise Department should view theShipping Bills online and clear the rebate claims without insisting on receipt of a physicalsigned copy of Shipping Bills and ARE 1. This will considerably reduce the transaction costand shall give competitive edge to the exporters in the global markets.

(3) Removal of Excisable Goods for Export to Special Economic Zone (SEZ):

The removal of excisable goods for export to SEZ requires submission of proof of exportalong with ARE-1 / ARE-3 within 45 days. Section 25 of the SEZ Act provides that goods andservices supplied from Domestic Tariff Area (DTA) will be exempt from all taxes and leviessuch as central excise, service tax etc. Further, these supplies are treated as export. Foravailing benefit of removal of goods without payment of duty, DTA unit requires to submitproof of export and endorsed copy of ARE-1 by Customs Officer at the SEZ to JurisdictionalSuperintendent of Central Excise within 45 days from the removal of goods from the factory.

The prescribed period of 45 days for submission of ARE-I / ARE-3 form is not sufficient whenheavy equipment are being transported from one corner of the country to another, whichnormally takes time between 30 to 60 days.


15/24

15

IEEMA Suggestion: A prescribed period of 90 days should be allowed for submission of ARE-I / ARE-3 form andthis should be reckoned from the date of receipt of goods at SEZ and not from the date ofsupply.

(4) End-use based Exemptions:

The Government issues many end-use based exemptions like supplies to Water TreatmentProjects, Non-Conventional Energy Devices, Defense, Navy etc.

Manufacturers supply material against certificates as prescribed under the notification givenby customers who are eligible for the exemption.

Often duty is sought to be demanded from manufacturers for alleged non-compliance of theconditions of notification / non-applicability of exemption to goods supplied, although suchusage is certified by customer / Excise Authorities etc.

IEEMA Suggestion:

Provision be made to recover duty involved in supplies against end use based notificationfrom user / customer instead of manufacturers / suppliers in line with the provisions ofcondition 43 of notification 12/2012 CE dated 17.3.2012 (Sr. no 338).

(5) CENVAT & Job Work:

Under rule 4(5)(a) of the CENVAT scheme, a manufacturer can send inputs / partiallyprocessed material to a job worker, if he is sending all the material required for the job as freeissue; orUnder rule 3(5), send the material by paying an amount equal to the credit claimed orapplicable duties on his manufactured goods to a job worker to manufacture intermediategoods as per his specifications and return the intermediate goods back to him for their use infurther production.

The job worker has two options

Return the processed material back to the supplier without paying excise duty in termsof notification 214/86 CE dated 1.3.1986; or

Pay excise duty on intrinsic value of the processed goods including the value ofmaterial received, and the receiving factory claims CENVAT credit of the said dutypaid by the job worker.

IEEMA Suggestion:

In International Auto Ltd. Vs. CCE, Bihar [2005 (183) E.L.T. 239(S.C.)] the Honble SupremeCourt has held that job worker is not liable to pay duty on inputs supplied by the final productmanufacturer.

In view of the above decision, the relevant rules / notification should be amended to


16/24

16

I. Allow the main manufacturer to send material (inputs and partially processed) withoutpayment of duty under rule 4(5) (a),

ii. Allow the job worker to avail CENVAT credit on inputs directly procured by him,

iii. Pay duty on final goods only to the extent of only the value addition by him,

iv. Not to add value of material / tools / design and engineering received free from themain manufacturer in terms of rule 6 of the Valuation Rules.

The above should be applicable in case the processed goods are returned to mainmanufacturer for use as inputs for further products. There is no loss of revenue, as thetransaction is revenue neutral but this will help to avoid unnecessary documentation and

litigation for notional amounts.(6) Issuing of Certificates by the Range Superintendents or Asst./Deputy

Commissioner of Central Excise & Customs:

Customers claiming deemed export benefit of refund of terminal excise duty paid by themanufacturer insist for duty payment certificates issued by the Range Superintendent having

jurisdiction over the manufactures factory or depot. DGFT insists for such certificates, and inabsence of such certificates, refund of terminal excise duty is denied.

Under Central Excise Rules, there is no provision for issuance of such certificates nor is therean executive instruction to the field officers to issue such certificates. CBEC has issuedcircular 620/2002 dated 20.2.2002 giving executive instructions to the field officers to issuesuch certificates to small scale industries as a matter of trade facilitation.

The large scale industries also face same difficulties, as they also need such duty paymentcertificates from the field officers. The customers eligible for deemed export benefit of refundof terminal excise duty (power projects, holder of invalidation letter against EPCG / Advance

Authorization etc.) from DGFT insist for such certificates and if the same is not providedwithin prescribed limit, the manufacturer does not get reimbursement of duty paid by them.

IEEMA Suggestion:

Circular 620/2002 dated 20.2.02 should be amended suitably so that all categories ofindustries can get such duty payment certificates from their concerned field officials.

(7) Allowance of Inter-Unit Transfer of CENVAT Credit to all Manufacturers:

At present inter-unit transfer of CENVAT credit is permitted only for Large Taxpayers Units(LTUs).

IEEMA Suggestions:

Allow inter unit transfer of CENVAT credit to all units of other manufacturers also.


17/24

17

(8) Revision of Interest rate in case of refund under Custom, Excise and ServiceTax:

With effect from 1 st April 2011, the government has made upward revision of interest ratefrom 13% and 15% to 18% in case of a delay in payment of duty in Custom, Excise andService Tax Act. However, no upward revision of Interest rate has been made in case ofdelay in payment of refund, which is still at 6%.

IEEMA Suggestion:

For the sake of justice and put more functional responsibility and efficiency to the department,the interest rate in case of delay in payment of refund be increased from 6% to 13%.

(9) Project Import 1986 regarding Registration of Contracts Regulation 5:

Regulation 5 of Project Import 1986 regarding Registration of Contracts says thatregistration of contract/contracts of goods has to be carried out on or before their importation.

IEEMA Suggestion:

To utilise the facility of warehousing by the importer and which was allowed earlier, the word"importation" should be replaced by the word "clearance" in Regulation 5 i.e. Registration ofContracts under Project Import Regulations (PIR), 1986. The benefits of project importsshould be extended to the consignments which are bonded but ex-bonded after the contractis registered.

In addition, warehouse goods other than intended for Export Oriented Units (EOUs) shouldbe allowed to be kept-in-bond for a period of at least 6 months without payment of interest outof 12 months as allowed to be kept in the warehouse (Reference Section 61 of Customs Act1962).

Project Import Registration clause says that all purchase orders on foreign vendors are to besubmitted along with one recommendation letter for total C.I.F. value and one ContinuityBond for total C.I.F. value at the time of registration of project import. Moreover, the Customs

Authorities insist that one purchase order will be registered for one project only.

The purchase orders are placed from time to time during the long duration of the project andit is not possible to submit all purchase orders at one time.

IEEMA Suggestion:

The condition may be extended further and should include that in case of power projectwhere Contract (Purchase Order) on foreign suppliers is placed in phased manner as perproject requirement, importer can register the additional purchase orders as and when ordersare placed on foreign supplier.


18/24

18

(10) Restoration of Exemption from Submission of Declaration Forms to States in theCST Act:

Central Sales Tax Act was amended in 2002 making the submission of central declarationform C compulsory. Prior to this amendment, many States in exercise of their power hadgranted exemption from submission of form C to big organisations mainly for supplies to theGovernment, Public Sector Undertakings etc. The States that had granted such exemptionincluded Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Tamil Nadu etc. However, afterthe amendment to CST Act in 2002, States no longer have such powers to grant exemption.Since these big companies are multi-locational and multi-product engineering enterpriseswith customers and project locations spread all over the country, collection of declarationforms from widely distributed customer base is posing serious challenges, includingsignificant administrative costs. Financial implications for non-collection of such forms is alsohigh, ranging from 2% to 10.5% of turnover and 4% to 12.5% on bought-out-items, besidesinterest which at times could be more than the tax differential.

IEEMA Suggestion:

As most of the sales are to customers likes State Electricity Boards / Central Power Utilities /Government owned companies, the powers to grant exemption from submission of formsshould be restored back to the States as earlier, at least for sales made by PSU companiesto State Electricity Boards / Central Power Utilities / Government owned companies, as thissaves differential tax liability on account of non-submission.

** ** **


19/24

19

Annexure I Instances of Inverted Customs Duties and Anomalies:

(a) Inverted Duty Structure on Insulators:

As per customs tariff, the basic customs duty on all Electrical Insulators , under Chapter8546 and 8547, is 7.5% and the total duty works out to 25.85%. The major raw materialsused for manufacturing of insulators are Clay, Alumina, Castings, Epoxy Resin, Hardener etc.

The major imported components for manufacturing of electrical insulators viz. metal parts(MCI / SGI casting component), Ball pins and CC rings etc. used for manufacturing ofinsulators under chapter 7325, attract 10% basic custom duty and the total duty works out to

28.85%. The other raw materials like Ball Clays, China Clays and Calcined Alumina, EpoxyResin, Hardener and other consumables attract a basic custom duty ranging from 5% to10%.

This is a clear case of inverted duty structure, where the import duty on inputs is higher thanthat of the finished product i.e. insulators.

(b) Inverted Duty in Project Import of Insulators:

Project imports of all goods pertaining to High Voltage Power Transmission Equipment attractonly 5% basic custom duty. Porcelain Insulator , under Chapter 8546 and 8547, normallyattracting 7.5% basic customs duty, is imported paying only 5% basic customs duty, under

the project import category.Whereas, the basic customs duties on the raw materials used for manufacture of PorcelainInsulators varies from 5% to 10%. Since, these materials are critical inputs for manufacturingPorcelain Insulators; these may be permitted to be imported at a basic customs duty of 2.5%.

(c) Inverted Duty on Insulated Cables and Wires:

The finished product Insulated Cables , under HS Code 8544, attracts a basic customsduty of 7.5%.

However, the raw materials used to manufacture this product attracta basic customs duty in the following manner:

S.No. Item HS Code Basic CustomsDuty (%)

1 Copper Wire Rod EC Grade 74071010 5.002 Aluminium Wire Rod EC Grade 76041010 5.003 G.I. Wire 72179099 5.004 Copper Tape 74101100 5.005 LDPE (Low Density Polyethylene) 39019090 7.506 HDPE (High Density Polyethylene) 39019090 7.507 XLPE (Cross Linkable Polyethylene 39019090 7.50


20/24

20

8 EPDM (Ethylene Propylene Diene Monomer) 40029990 10.009 Water Blocking Tape 39199090 10.0010 Glass Mica Tape 68149090 10.00

PACKING MATERIAL11 WOODEN DRUMS FOR CABLES 44151000 10.00

Similarly the finished product Stainless Steel Wires of different grades, under HS Code7223, attracts a basic customs duty of 5%.

However, the raw materials used to manufacture this product attract a basic customsduty in the following manner:

S.No. Item HS Code Basic CustomsDuty (%)

1 Stainless Steel Wire Rod 72210090 5.002 Lubricants 27101980 10.003 Wire Drawing Dies 82072000 10.00

PACKING MATERIAL4 Plastic Spools 39234000 10.00

(d) Anomaly in Customs Duty for Capacitors:

The finished product Power Capacitor, under HS code 85321000, attracts 0% basiccustoms duty; 12% CVD and 4% SAD, as per customs notification no. 24/05-Cus., dated1.3.05

However, the major raw materials used to manufacture this product viz. Polypropylene Film(HS code 39202090); Aluminium Foil (HS code 76071100) and Oil (HS code 38249090) etc.also attract the same level of duties i.e. 0% basic customs duty, 12% CVD and 4% SAD,under an exemption notification.

This is a duty anomaly as the duty on finished goods and all its major raw materials is at thesame level. Ideally, the duty on finished goods should be higher than its raw materials.

(e) Anomaly in Customs Duty for Conductors:

The finished product Aluminium Conductor , under tariff heading 76141000 and 76149000with its description as Stranded wires, cables, plaited bands with steel core and the likes of

Aluminium not electrically insulated, attract a basic customs duty of 10%.

Similar kind of conductors under tariff heading 76042910; with its description as Hard drawnbare Aluminium conductors steel re-inforced (ACSR); attract a basic customs duty of 5%.

On the other hand, the raw materials used for manufacture of these conductors, under tariffheading 76011010 and 76011040; with its description as Aluminium not alloyed ingots and

wire rods; also attract a basic customs duty of 5%. This is an anomaly since the raw materials


21/24

21

required for manufacture of Aluminium conductors also attracts a basic customs duty at thesame level.

The tariff heading under 76042910 be removed in order to correct this anomaly. This will helpprotect the domestic Aluminium conductor manufacturing industry against massive import of

Aluminium conductors from China under tariff heading 76042910 attracting at a basiccustoms duty of 5% only.

(f) Inverted Duty in Project Imports of Power Generation Equipment:

The finished power generation equipment such as Boilers (HS Codes 8402,8404,8481)and Turbines (HS Codes 8406,8410,8411), normally attracting 7.5% basic customs duty,

can be imported under project import category paying only 5% basic customs duty, underChapter 9801 (Sl.no. 506 of Custom Notification 12/2012 dated 17-3-12).

However, the basic customs duty imposed on one of the raw materials for manufacturing theabove finished products viz. Carbon Steel (HS Codes 7208 and 7209) is 7.5% (Sl.no. 334 ofCustom Notification 12/2012 dated 17-3-12).

(g) Inverted Duties on Basic Customs duty on Semi-conductor Devices and PVModules:

The Semi-Conductor Devices , under tariff heading 85411000 attracts a NIL basiccustoms duty. Whereas, its following raw materials attract a basic customs duty ranging from

NIL to 10%.


22/24

22

SL.NO ITEM HS code CD

1 DIFFUSED SILICON WAFER/chips 854190 0%2 MOLYBDENUM DISCS 810299 5%3 FUSED QUARTZWARE 702000 10%

4 HOUSINGS 854190 0%5 OFHC COPPER PARTS 741999 10%6 ALUMINIUM WIRE OF PURITY MORE THAN 99% 760519 5%

7 ALUMINIUM IN PALLET SHAPE>99% PURITY 760429 5%8 ALUMINIUM FOIL OF PURITY>99% 760719 5%9 LAPPING ABRASIVE POWDER-AL.OXIDE POWDER 281820 5%

10DOPING SOURCES IN ANY FORM(BORON NITRIDEBOAT) 285000 7.5%

11 DOPANT-POCL3 281290 7.5%12 PHOTO RESIST & DEVELOPER 370790 10%

13 CERAMIC ITEMS OF SILICON CARBIDE 690320 5%14 RUBBER ITEMS LIKE O RING, GASKET etc. 401693 10%15 PLASTIC ITEMS 392690 10%

16DIFFERENT TYPE OF CHEMICALS (REF CHAPTER2&29) - 10%

17 ETHYL ALCOHOL-ETHANOL (DENATURED) 220720 7.5%


23/24

23

Similarly, the basic customs duty on Photovoltaic and Solar Cells under HS code85414011 is NIL. Whereas, the basic customs duties on its following raw materials are bothNIL and 10%.

ITEMHS

Code CD

1 UNDIFFUSED SILICON WAFER 381800 02 EVA, MULTI-LAYERED SHEET WITH TEDLAR 392190 10%3 CRANE GLASS 701931 10%4 TOUGHENED GLASS 702000 10%5 TINNED COPPER INTERCONNECT 741999 10%6 SILVER POWDER SUSPENSION 710610 10%7 ALUMINIUM PASTE 760320 5%

(h) Inverted Duty on Electrical Transformer:

The basic customs duty on Electrical Transformer , under HS code 8504, is 7.5%.Whereas, some of its raw materials, such as, Kraft paper (HS Codes 48041100, 48041900);Press Board (HS Code 48239090); and Transformer Oil (HS Code 27109090) etc. attract10% basic customs duty.

(i) Inverted Duty on Cable Terminals and Connectors:

As per the exemption notification no. 25 dated 1 st March, 2005, there is Nil customs duty onCable Terminals and Connectors , falling under HS code 853690.

Its following raw materials attract basic customs duty in the range of 5% to 10%.

Sl. No. Item HS Code CD

1 Brass Strips & Coil 74092100 5%2 Phosphor Bronze Strips & Coil 74093100 5%3 Copper Strips & Coil 74091100 5%4 Polymide Chips 39081010 10%5 Polymide Chips 39081090 10%6 Polypropylene & Polymer 39021000 7.5%7 Polymer Resins 39042290 7.5%8 Lubricating Oil 27101990 10%

(j) Duty anomaly in Optical Fibre Cables:

A variety of Optical Fibre Cable (finished product), under HS Code 90011000, ismanufactured using Optical Fibre as its raw material. Both the finished product and its rawmaterial fall under the same HS Code and attract the same rate of basic customs duty i.e.10%.


24/24

24

Annexure II

Note on customs-credit scheme, proposed by IEEMA, to resolve inverted dutystructure on all products

Logically, the import duties on finished products should always be higher than import dutieson their intermediates and raw materials.

Although the Government has rationalized the duty structure of electrical equipment to alarge extent, anomalies still exist in case of some products where the import duty on finishedProducts is either lower or equal to that on intermediaries and raw materials.

IEEMA proposes that the peak rate of Customs duty, which is now 10 %, be levied across theboard.

The manufacturers using such goods as raw materials or intermediates for further processingor to use such goods in the manufacturing of finished goods (with minimum value additioncriteria), should be given 50% Custom Duty Credit from the peak rate.

This would make the effective rate of duty on all the goods, which are going into themanufacturing of finished products as raw materials / inputs as 50% of that of the goods,which are not used in the manufacture of finished goods.

This can be done by amending the present Cenvat Credit Rules, wherein specific provision isto be made for taking the credit of the Customs Duty to the extent of 50%, which is notavailable at present.

This scheme can be termed as CUS-CREDIT Scheme.

For example, if an importer imports a steel item, falling under tariff heading 7225 - flat rolledproduct of other alloy steels, costing say INR 10,00000/- (INR ten lakhs), he will pay customsduty of INR 1,00,000/-, (INR one lakh) @10% at the time of clearance.

If the importer is a manufacturer of excisable products falling under say tariff heading 8501-Electrical motors, he can take a Cus-credit of duty of 50% i.e. INR 50,000/- (INR fiftythousand), when the material is brought in his factory for using in production of excisable

goods i.e. electric motors.On the other hand, if the importer is a builder, who wants to use the same as roofing, he willnot be able to take the Cus-Credit.

Thus, for an electric motor manufacturer the effective duty will be INR 50,000/- (INR fiftythousand only), while for a builder the effective duty will be INR 1,00,000/- (INR one lakh),though at the time of clearance both have paid the same duty.

** ** **

(ieema)-customs, excise, and cst

Documents