Circular No. 522 dated 31^st March 2000

It is directed to say that, as you are aware, the scheme of levy of excise duty based on capacity of production under section 3A of the Central Excise Act, 1944, in respect of hot steel re-rolling mills and induction furnace units is being, discontinued w.e.f. 1^st April 2000. Accordingly, Notification No.24/97(NT), dated 25^th July 1997, 30/97(NT), 31/97(NT), 32/97(NT), 47/97, 48/97, 58/97, all dated 1 August 1997, are being rescinded w.e.f. 1^st April 2000.

2.     From 1^st April 2000, onwards re-rolling mills and induction furnace units would be required to pay excise duty (CENVAT) on ad-valorem basis. In this context the following decisions that have been taken by the Government are being brought to your notice for necessary action.

3.     As per the existing scheme under section 3A, there-rolling mills are required to discharge the duty liability for the period upto 31^st March 2000 by paying the specified amount of the instalment by the 10^th of March 2000. In the case of induction furnace units, the duty for the period upto 31^st March 2000 is to be paid under section 3A by payment of the instalment by the 31^st March 2000. Accordingly, the stocks of finished goods lying with the re-rolling mills and induction furnace units as on 1.4.2000 may be treated as duty paid and such stocks shall not be required to suffer any further ad-valorem duty when they are cleared from the re-rolling mill or induction furnace units on or after the 1^st day of April 2000. The re-rolling mills and the induction furnace units may also be advised to indicate on the invoices, when such stock is cleared, that the duty thereon was paid under section 3A of the Central Excise Act, 1944. The units may also be asked to maintain necessary records evidencing the fact that the clearances made without payment of ad valorem duty on or after 1^st April, 2000, were from the stocks lying on the midnight of 31^st march, 2000 and 1^st April, 2000.

4.     It has also been decided that CENVAT credit may be allowed in respect of stocks of input materials, which are lying with there-rolling mills and induction furnace units as on 1^st April 2000. However, the credit shall be allowed only on such quantity of stocks, which is supported by duty paying documents. The re-rolling mills and induction furnace units may be advised that unless the duty paying documents are available with them, the CENVAT credit would not be admissible. Any credit wrongly taken would meet with the consequences prescribed under the CENVAT rules.

5.     A question has been raised as to whether the re-rolling mills and induction furnace units would be eligible to take credit of the duty paid on capital goods received in the factories during the period 1.9.1997 till 31.3.2000. In this context it is clarified that no such credit is admissible in respect of such capital goods.

6.     The re-rolling mills and induction furnace units may have waste and scrap lying in their factories as on 1^st April 2000. The clearances of such waste and scrap would be eligible to exemption from excise duty under notification no. 49/97-Central Excise, dated 1 August, 1997. It may, however, be mentioned this notification furnace units should clear the waste and scrap lying with them as on 1^st April, 2000.

7.     Necessary action may be taken by the field officers to ascertain the quantity of the stock of finished goods, inputs and waste and scrap lying with there-rolling mills and induction furnace units as on 1^st April, 2000. Reliance may also be placed on the records maintained by such units in respect of the quantity of finished goods, inputs and waste and scrap lying in their stocks on 1^st April, 2000.

8.     As mentioned earlier, the stocks of finished goods as on 1^st April, 2000 have been allowed to be cleared without payment of duty. It has been decided to allow deemed credit to the users of such stock. For this purpose notification no. 29/2000-Central Excise, dated 31 March, 2000 has been issued, and may kindly be referred to.

9.     The above changes and decisions may kindly be brought to the notice of the field formations and of the trade by issue of suitable Trade Notice. It is also requested that the re-rolling mills and induction furnace units may be given advice and clarification promptly by the officials on any point of doubt raised by them.

Trade Industries - Instructions

Dated 1^st April 2000

I am directed to say that the following changes have been made in the excise duty structure relating to the textiles sector and notification Nos. 24 & 30/2000-CE and 24 to 28 & 30 to 32/2000-CE(NT) all dated the 31^st March, 2000 have been issued in this regard.

Independent textile processors working under section 3 A:

2.     The pre-budget position allowing abatement under sub-section (3) of section 3A to independent textile processors, in respect of closed and sealed stenter has been restored with effect from 1.4.2000. However, such abatement will be permissible only on closure of the stenter for a period of not less than fifteen days. The abatement will henceforth be sanctioned by the Joint Commissioner of Central Excise instead of the Commissioner. Rule 96ZQ of the Central Excise Rules, 1944, has been suitably amended for this purpose (notification No. 31/2000-CE (NT) refers). Notification No. 28/2000-CE has been issued bringing about some minor drafting changes in clause (a) of item (II) of notification No. 19/2000-CE

3.     It has been decided to delegate the power with regard to determination of the annual capacity of production of the factory of the independent processor to the Deputy Commissioner of Central Excise/Assistant Commissioner of central Excise w.e.f. from 1.4.2000. Hot-air Stenter Independent Textile Processors Annual Capacity Determination (Amendment) Rules, 2000, have been suitably amended for this purpose. Notification No. 26/2000-CE(NT) may kindly be referred to in this regard. Accordingly, the assessees will henceforth file the declaration for determination of annual capacity of production to the Deputy Commissioner/ Assistant Commissioner in charge of the Division, with a copy to the Range Superintendent.

Deemed credit:

4.     The deemed credit of the duty paid on the inputs, presently allowable in terms of sub-rules(5) and (6) of rule 57A of the Central Excise Rules, 1944, will henceforth be allowable in terms of rule 57AK of the Central Excise Rules, 1944. Accordingly, notification Nos. 29/96-CE(NT), dated 3.9.96, 16/2000-CE(NT) dated 1.3.2000 and 17/2000-cE(NT), dated 1.3.2000, issued under the earlier powers have been rescinded(notification Nos. 24 & 25/2000-CE(NT) refer) and Notification Nos. 28,30 and 32/2000-CE(NT), have been issued under rule 57AK, allowing the deemed credit with effect from 1.4.2000. Consequently, reference to notification No. 29/96-CE(NT) in para 2 of the Notification No. 17/2000-CE is being substituted(w.e.f. .1.4.2000) with a reference to notification No. 28/2000-CE(NT) (notification No. 30/2000-CE refers).

Independent texturiser:

5.     A specific duty of Rs. 2.50 per kg. was imposed in the budget (S.No. 114 of notification No. 6/2000-CE), on texturised yarn (including draw twisted and draw wound yarn) of polyesters falling under heading No. 54.02, manufactured by an independent texturiser, subject to the conditions specified therein. However, in the definition of independent texturiser (under notification No. 21/1999-CE(NT) and sub-rule (7A) of rule 57H, the product was described as texturised yarn only. This discrepancy has now been removed and in clause � of sub-rule (2) to 57AB and sub-rule(3) of rule 57AG, the product description of texturised yarn has been amended to include draw twisted and draw wound yarn also.

6.     It may further be noticed that as per clause (c) of sub-rule (2) to 57AB, CENVAT credit will not be available to the independent texturiser only in respect of the inputs used in the manufacture of texturised yarn (including draw-twisted and draw-wound yarn) of heading No. 54.02. It is clarified that where an independent texturiser is also involved in the manufacture of goods other than texturised yarn (e.g. fabrics) on which he discharges normal excise duty, the CENVAT credit shall be allowed in respect of the inputs used by such independent texturiser for the manufacture of such other goods. an independent texturiser who manufactures texturised yarn (including draw twisted or draw wound yarn) of polyesters falling under heading No. 54.02, and also any "other goods", shall be allowed to take actual credit of the duty paid on inputs used for the manufacture of such "other goods", lying in stock as on the 1^st day of March, 2000 or received in his factory on or after the 1^st day of March, 2000.

7.     Copies of the notifications follow.

8.     The Trade and Association may be advised suitably. The Officers may be instructed to clarify promptly any doubt that may be brought to their notice.

CENVAT Classification

Dated: 3^rd April 2000

1.     As you are aware, CENVAT Rules were notified vide notification No. 11/2000-CE (NT) dated 1^st March, 2000 and they were to come into force from 1.4.2000. Since then, we have received references from the Commissioners as also from trade and industry, seeking clarification on certain aspects.

2.     We have examined these references. Some modifications have now been carried out in the CENVAT rules and the CENVAT rules have now been notified vide notification No. 27/2000-CE (NT) dated 31^st March, 2000. These come into force w. e.f 1^st April, 2000.

3.     The definition of " has been revised. The revised definition is comprehensive enough to specifically include components, spares and accessories as also other capital goods like moulds and dies, refractories and refractory materials etc. It may be clarified that the components, spares and accessories may fall under any Chapter but they should be components, spares and accessories of the goods specified in clause (a)(I) of rule 57AA.

4.     It may also be clarified that even air-conditioners and refrigerating equipment and computers would be eligible to CENVAT credit as capital goods. The only condition is that the manufacturers should use them in the manufacture of final product. Clearly, therefore, such of the goods which are used in the offices of the factory are not eligible to CENVAT credit. For example, an air-conditioner used in the office premises or a computer used in the office premises of the factory shall not be eligible to CENVAT credit.

5.     Some doubts have been raised whether CENVAT credit would be admissible on the part of the input that is contained in any waste, refuse or bye product. In this context it is clarified that CENVAT credit shall be admissible in respect of the amount of inputs contained in any of the aforesaid waste, refuse or bye product. Similarly, CENVAT should not be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly.

6.     A specific provision has now been made if the inputs or capital goods are cleared to a job worker. It has been provided that they should be received back within 180 days. If they are not received, the manufacturer shall debit the CENVAT credit attributable to such inputs or capital goods, otherwise it will be an offence. However, the manufacturer shall be entitled to take CENVAT credit as and when the goods sent to the job worker are received back. If part of the goods are received back within 180 days and the rest of the goods are received back after 180 days, the obligation for debiting the credit shall arise only in respect of CENVAT credit attributable to that part which is not received within 180 days.

7.     Provision has also been made for permitting the CENVAT credit when the inputs or capital goods are purchased from the first stage dealer or from the second stage dealer. These dealers should be registered under rule 52AA of the Central Excise Rules. The other procedural requirements in respect of first stage dealer and second stage dealer will continue as in the case of modvat rules.

8.     In the case of capital goods, the CENVAT rules do not provide installation of capital goods as a pre-requisite for taking CENVAT credit. The credit can be taken as and when the capital goods are received in the factory. For such capital goods which were received prior to 1.4.2000 but not installed up to 1.4.2000 also, the CENVAT credit wold also be admissible. It may, however, be noted that in respect of all capital goods whether received on or after 1.4.2000 or those that were received prior to 1.4.2000 but not yet installed, the condition that CENVAT credit only up to 50% of the total admissible amount would be available in the financial year 2000-2001 would apply. The balance of the CENVAT credit in respect of such capital goods can be taken in a financial year subsequent to 2000-2001.

9.     CENVAT credit shall also be admissible in respect of additional excise duty payable under the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 and the additional duty of excise payable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The credit of equivalent "CVD component" on imports shall also be admissible. However, such credit can be used only for payment of the respective kind of additional duty on the final product.

10.   Provision has also been made for dealing with credit in relation to inputs used in the manufacture of final products which are exported. These provisions are on the same lines as in the case of modvat rules.

11.   In the CENVAT scheme, the documents on which CENVAT credit can be taken have been prescribed to enable verification, where needed by the department. The admissibility of the amount of CENVAT credit should be discernible from the records of the manufacturer, including the payment made to the sellers of inputs and capital goods were purchased and were used by him for the intended purpose.

You are requested to kindly impress upon the officers to go through the CENVAT rules and apply them in the spirit the CENVAT scheme has been announced by the Finance Minister. Provisions like filing of declaration of inputs and capital goods have been dispensed by way of simplification. The intention and the expectation is that CENVAT rules would reduce the area of disputes and litigation. You are requested to kindly keep this aspect in mind and impress upon this policy objective to field officers. In case of any doubt, the matter should be resolved at your level rather than taking recourse to any hurried issue of show cause notice. In case you feel that any instructions or clarification is needed from the Board�s office to resolve any doubt or conflict, you may kindly refer the matter, so that the Board can issue the necessary instructions for the sake of ensuring uniformity in their application.

12.   As regards the monthly returns, separate instructions would follow soon.