Circular No. 278 dated 11^th December 1996

Representations have been received to the effect that additional duty of excise under Additional Duty of Excise (Textile & Textile Articles) Act, 1978 (hereinafter referred to as the "said Act") is being demanded on goods exported under bond under rule 13 of Central Excise Rules, 1944 causing undue hardship to exporters and it has, therefore, been requested to issue a suitable clarification.

2.     In this connection, it has been reported that -

a)     The term "duty" has not been defined under Rule 13 and therefore as per Rule 2 (v) of the Central Excise Rules, 1944, the term "duty" for the purpose of Rule 13, should refer only duty payable under Section 3 of the Central Excise Act, 1944.

b)     There is no specific exemption notification exempting additional duty of excise for the purpose of exports.

c)     Hon'ble Supreme Court in the case of Union of India v. Modi Rubber Ltd. [1986 (8) ECR 723 (SC)] has held that exemption under Rule 8 (1) (now under Section 5A of Central Excise Act) is applicable to duty of excise leviable under Section 3 of the Central Excise Act, 1944 and is not applicable to the special excise duty leviable under the Finance Act.

3.     The matter has been examined by the Board.

3.1   According to Sub-Section 3 of Section 3 of the Additional Duty of Excise (Textile & Textile articles) Act, 1978 the provisions of Central Excise Act, 1944 and the rules made thereunder including those relating to refunds and exemption from duties are applicable in relation to the levy and collection of the duties of excise leviable under said Act. By virtue of this provision, therefore, Rule 13 of Central Excise Rules, 1944 will apply even to the additional duty of excise leviable under the Additional Duty of Excise (Textile & Textile Articles) Act, 1978.

3.2   Regarding the judgement quoted above, it is observed that clearances under bond are not synonymous to clearances under exemption (copy of the opinion of Ministry of Law is enclosed) and therefore the aforesaid judgement of Hon'ble supreme Court is not relevant to the present case.

3.3   Notifications issued under Rule 12 specify duties to be rebated on goods exported and include additional duty leviable under Additional Duty of Excise (Textile and Textiles Articles) Act, 1987. Intention of both Rules viz. Rule 12 and Rule 13 is to make duty incidence nil in case of export and as such on harmonious construction of the two rules, it may be construed that additional duty is covered by the expression "duty, both for the purpose of export under rebate and export under bond.

4.     In view of above, it is clarified that no additional excise duty levied under the said Act is to be paid on goods exported under bond.

5.     The pending issues may be finalised in view of the above. The present practice in the matter and the amount of additional excise duty involved in such exports under: (i) rule 12 and (ii) under rule 13 separately (for the period September '94 to March '95, April '95 - March '96 & April '96 to November '96) may please be reported within a month.

Copy of Ministry of Law, Justice & Company Affairs, New Delhi

U.O. No. 24476/74-Advice (B) dated 29.10.74.

"The question for consideration in the present case is whether, in cases where goods manufactured under the provisions of rule 56-A are finally exported in bond so that no duty is actually paid on their export, the admissibility of proforma credit on account of duty paid on raw materials or component parts, used in the manufacture of the finished excisable goods so exported in bond, would be legally barred in view of the provisions of clause (i) of the proviso to sub-rule (2) of the rule 56-A.

2.     The said clause (i) is to the effect that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods produced by the manufacture are:

(i)       Exempted from the whole of the duty of excise leviable thereon; or

(ii)      Chargeable to nil rate of duty.

Could it, therefore be said that the finished excisable goods, when they are being finally exported in bond, are to be taken as goods exempted from the duty payable thereon, or as goods chargeable to nil rate of duty.

3.     It may be mentioned, in this connection, that the present question was referred to this Ministry on an earlier occasion, but in a different context, and from a different angle. The reference was whether credit given for excise duty paid on parts and component materials which has gone into the manufacture of an excisable article which is cleared under a bond for export without payment of excise duty can be utilised towards other clearances for home consumption for which duty is chargeable.

4.     It was advised by this Ministry on that occasion, that, under the rules as they stand, the answer is in the negative. The reason was that the words 'such materials' occurring in rule 56-A could not mean 'like materials'. In other words, as the rule a was then worded, it was legally permissible to adjust the proforma credit in respect of duty paid on component parts only against duty payable of finished excisable products manufactured out of those very component parts. In the cases under consideration, the finished excisable products having been exported under bond, the proforma credit has invariably to be adjusted against similar goods manufactured by the same manufacturer. This was held to be not legally in order. In pursuance to this advice, clause (vi) of sub-rule (3) or rule 56A was amended so as to make the adjustment possible even against duty payable on any finished excisable products for the manufacturer of which such material or component parts were permitted to be brought into the factory under sub-rule (2) of rule 56-A. Correlation between particular raw materials or components and particular finished products was thus no longer necessary.

5.     It is true that this Ministry was not at that stage specially required to go into the question as to whether the proforma credit could at all be adjusted against the duty payable on finished goods exported in bond, in view of the provisions contained in clause (i) of the proviso to sub-rule (2) of rule 56A. Nevertheless, in the referring notice of Member (Central Excise), this Ministry's attention was drawn to the provision of the said clause (see para 10 of Shri J. Banerjee's note). The clause was, therefore, apparently in consideration of J.S. & L.A. when he expressed his opinion that proforma credit could be adjusted provided the stipulation concerning 'such materials' was suitable amended.

6.     However, since a specific reference has now been made to us, the same is considered in more details below.

7.     Clause (i) of the proviso to sub-rule (2) of rule 56-A, as referred to above, refers to the inapplicability of proforma credit to finished products, which are either exempted from the whole of duty or are chargeable to nil rate of duty.

8.     The term 'exemption', as far as central excise duty is concerned, has a definite connotation in that such exemption will have to be attributable to a notification by the Central Government, as contemplated in rule 8 of the Central Excise Rules, 1944. Since the said rule empowers the authorisation of exemption of duty, the term 'exemption' as used in other provisions contained in the Rules will have to be taken to mean exemptions so granted by the Central Government under rule 8.

9.     Obviously enough, in the present case, the exports under bond are duty-free not by virtue of any exemption notification issued under rule 8, and so the first prohibition contained in clause (i) of the proviso to sub-rule (2) of rule 56-A does not come into play.

10.   This leaves us with the second part of the prohibition i.e., whether the non-payment of duty in respect of goods exported under bond flows from the said goods being chargeable to nil rate of duty. In this connection it would be relevant to note that rule 13, as its title indicates, refers to export under bond of goods on which duty has not been paid. If, in fact, the duty on the goods exported is paid, then a claim for rebate would arise under rule 12. The manufacture could, if he chooses so to do, export it in bond, without first paying duty and thereafter claiming rebate. In the circumstances, it cannot be said that the goods are chargeable to nil of duty.

11.   In view of the above, the provision of clause (i) of proviso to sub-rule (2) of rule 56-A would not apply to instances covered by the present reference, namely, where finished excisable goods are exported under bond. Any other interpretation of the provision would also lead to the anomalous position, as pointed out by the Department, that if a manufacturer opts to export finished excisable products, he can claim rebate of full amount of duty including duty paid originally on the intermediary goods while, if he exports under bond, he would not get the proforma credit on raw materials. Such an interpretation has obviously to be avoided, more so when the intention itself was not to effect such a discriminatory treatment.