Excise Holiday to J&K Units � Clarifications on Implementation
Excise Circular No. 682 dated 19th December 2002
No. 56/ 2002-CE dated 14.11.2002 exempts excisable goods, with a few exceptions,
when cleared from a unit located in specified areas in the State of Jammu &
Kashmir (J&K). Similarly, notification No. 57/2002-CE dated 14.11.2002
exempts specified goods cleared from a unit, irrespective of its location in the
State of J&K. Exemption under both the notifications will apply only to new
units set up on or after 14.6.2002 or to units undertaking substantial expansion
on or after this date. The exemptions are available for a period not exceeding
10 years from 14.6.2002 or commencement of commercial production. The exemptions
are on the lines of the notifications issued for North Eastern States under
Notification No. 32/99-CE and 33/99CE: both dated 8.7.1999.
The above two notifications for the State of J&K exempt that portion
of the excise duty, which is paid by the manufacturers in cash. For this
purpose, a suitable mechanism has been incorporated in the notifications. The
manufacturer is first required to pay the excise duty and thereafter, whatever
is paid in cash is to be refunded. It is also intended that the user of any
input or capital goods on which such exemption has been availed should get the
full CENVAT credit including the portion of duty refunded to the manufacturer of
such input or capital goods. For this purpose, Cenvat Credit Rules, 2002 have
been amended by Notification No. 39/2002-CE (NT) dated 14.11.2002.
In this context, it may be pointed out that the "refund"
envisaged in the notifications is not on account of any excess payment of excise
duty by the manufacturer but is basically designed to give effect to the
exemption. In other words, the mechanism has been adapted to operationalise the
exemption envisaged in these two notifications. In view of this aspect of the
matter, the provisions of Section 11B of the Central Excise Act, 1944 would not
apply in the case of these notifications.
The notifications provide for expeditious refund of duty paid in cash. It
is for this reason that a provision has been made for allowing refund even on
provisional basis by the 15th of the next month, in case there is
likely to be a delay in verification of the refund claims. Any excess or
shortfall in case of refund, allowed on provisional basis may be adjusted in the
subsequent refund claims. Considering the fact that verification of refund
claims basically involves checking of duty paid in cash, in most cases, it
should be possible to allow refund by the 15th of the subsequent
month. The Board is of the view that pre-audit of refund claims of more than Rs.
5 lakhs should not lead to delays. If it is possible to pre-audit, and the
finalization of claim could be completed before the 15th of the next month, it
may be resorted to. Otherwise, the initial provisional refund may be allowed
without pre-audit and while deciding upon its finalization, pre-audit may be
It may be noted that the notifications apply to goods cleared from a
factory. As such, they do not apply to goods cleared from the warehouses.
Problems, if any, faced in this regard may please be brought to the notice of
As regards the date of commencement of production, the Department of
Industries of the State Government may be consulted who should be in a position
to advise on this aspect.
The exemption under these notification applies to new units set up on or
after 14.6.2002 or to the existing units undertaking substantial expansion by
way of increase in installed capacity by not less than 25% on or after
14.6.2002. Normally, if a unit has undertaken substantial expansion in capacity,
it would utilize; the expanded capacity and not keep it idle. There could,
however, be a case where a unit discontinues production on newly installed
machinery or may later on decrease the capacity of production. Such cases may
have to be examined carefully in more detail.
This letter addresses, by and large, the key issues and concerns involved
in the effective implementation of these notifications. The Board desires that
you may kindly guide your officers suitably and take appropriate action to
ensure smooth implementation of Notification No. 56/2002-CE and 57/2002-CE both
dated 14.11.2002, having regard to their spirit and objective. If any problem is
still faced in the implementation of these notifications, you may kindly make
suitable reference to the Board.