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Limit and cover under excise..

This query is : Resolved 

Querist : Anonymous (Querist) 28 August 2011

The client's company is a manufacturing SME unit; where the total manufactured turnover excluding exports comes below the exempted threshold limit of Rs.1.5 cr a year.

Now their production increases and crossed domestic turnover of Rs.1.5 cr

Experts Pl. advise on the following:
a) will the Deemed Export should also be calculating the threshold
b) If the domestic turnover alone croses Rs.1.5 cr. during the Financial year
- When to register with Excise
- How the Excise is payable or applicable
- ie from the date registration of from the 1st day of the financial year
- The stock non-exised raw material purchased before the date of registration should also be charged for excise..
- The unsold finished products should also be considered for Excise..?
- Is CENVAT Credit of input can also be taken into account
- What are statutory compliances as to Monthly/quarterly/annual returns etc.
- Is there possiblility of taking excise lower rate of excise
c) if the turnover does not crosses 1.5 cr. in the subsequent year, will excise to be paid even for a turnover less than Rs.1.5 Cr.

Experts please clarify and advise..

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
28 August 2011

Provisions of Small Scale Industries under Central Excise

An industrial undertaking in which the investment on Fixed Assets in plant and machinery whether held on ownership or terms on lease or on hire purchase does not exceed Rs. 10 million as per Small Scale Industries Act.

As per Central Excise Act SSI Unit means a unit whose turnover is less than 4 crores (Rs 3 Crores upto 2004-05) in the last Financial Year.

Under Central Excise Act 1944 the Govt. has given various concessions to SSI units to encourage their growth. SSI units whose turnover was less than Rs. 4 coroes in 2006-07 are eligible for the concessions, if the units does not avail Cenvat Credit on inputs, turnover upto Rs. 150 lacs (Rs 100 lacs upto 2006.07) is fully exempt.

If SSI unit avails Cenvat Credit on inputs, it has to pay normal duty on all clearances and no SSI exemption is available.

According to the definition of Central Excise all industries are eligible for concession irrespective of their investment or numbers of employees or size of the industry or unregistered under SSI Act. Any industry is eligible for this concession if its annual turnover is less than 4 crores.

Under section 209(1)(d) of Companies Act 1956 SSI is to be considered to those units whose
(a) aggregate value of machinery and plant installed wherein, as on the last date of the preceding financial year , does not exceed limit as specified for a small scale industrial undertaking under the provisions of the Industries (Development and Regulation Act 1952 and
(b) the aggregate value of turnover made by the company from sale or supply of all its products during the preceding financial year does not exceed ten crores of rupees.

Choice of Exemption:

It is the choice of the SSI unit which type of exemption it will avail and that option must be informed to the Department:

First Option: Avail full exemption upto 150 lacs and pay normal duty thereafter. Such units can avail Cenvat credit on inputs after reaching turnover 150 lac in that particular financial year.

Second Option: SSI unit can also pay duty on 100% despatch and avail full Cenvat Credit on inputs.

Other conditions:

a) If any SSI unit having various products either he has to avail Cenvat credit for all products or opt for exemption. It is not permissible to avail Cenvat credit for some products and avail exemption for other products.
b) If a manufacturer has more that one factory, he has to avail any one option in respect of all factories. He cannot opt to avail Cenvat Credit in respect of one factory and avail SSI exemption for other factory.
c) Exception is only permissible in case of export. If the final product is exported, the SSI unit can avail Cenvat Credit in respect of inputs used for final product, which is exported.
d) Cenvat Credit is to be reversed if any SSI unit decides to opt for exemption in mid of any fiancial year. In this situation the unit has to pay an amount equivalent to Cenvat Credit allowed him on the inputs lying in stock (whether in form of Raw Martial or Work-in- process or Finished Goods) and if any Cenvat Credit on inputs is balance in RG 23A Part-II, it will be lapsed.
e) If any SSI unit decides to avail and utilize Cenvat Credit in middle of the financial year it is entitled to avail Cenvat Credit on the closing Stock on inputs (whether in form of Raw Martial or Work-in- process or Finished Goods) on the date of declaration. In this situation turnover is to be considered from 1st April of that financial year.

Calculation of Turnover:

While calculating turnover or limit of Rs. 4 crores the following clearances are to be:

A. Excluded:
a) Export other than Nepal and Bhutan (Clearance means for “home consumption” i.e. that is in India only not any export);
b) Deemed exports to - 100% EOU, SEZ, FTZ, EHTP, ESTP or supplies to UNO;
c) Turnover non-excisable goods;
d) Goods manufactured with other’s brand name cleared on payment of duty.
a) All types of trading turnover;
b) Job work or any process which does not amount to manufacture;
c) Goods returned and cleared after processing including repairing work;
i) No clubbing turnover of the units belonging to the Government, Khadi and Village Commission etc.

B. Included:
a) If one Manufacturer has more than one units or factories even in different places, the turnover of all factories have to be clubbed for calculating the SSI exemption limits.
b) Some times, one manufacturer may use a factory for part of the year and another manufacturer may use the same factory for rest of the year, in such cases, the turnover of different manufacturers has to be clubbed for calculating the SSI exemption limits.
c) If more than one manufactures use a particular factory, in such cases, the clearances of different manufacturers have to be clubbed for calculating the SSI exemption limits.
d) If goods or final products are exempt under any other notification (other that SSI exemption notification) the value of final product is to be considered for calculating the limit;
e) Captive consumption, if used in manufacture of final product which is exempt under any other notification;

Generally, the provisions for calculation of turnover and exemption are similar. Major distinction is that if goods are exempt under a notification other than SSI exemption or job work exemption notification.

Items are not eligible for SSI concession:

a) Goods chargeable at NIL rate of duty or exempted under any other notification;
b) Tea;
c) Extract or essence of tea or coffee;
d) Pan masala;
e) Tobacco products;
f) Sandal wood;
g) Matches;
h) Photographic plates, films and papers;
i) Polyurethane foam and articles of made from Polyurethane;
j) Textile articles;
k) Ceramic tiles;
l) Stainless steel patties/pattas;
m) Copper and copper alloys;
n) Aluminium circles;
o) Tractors, motor vehicles, cars, chasis, motorcycles;
p) Watches (value upto Rs. 500);
q) Arms and ammunition;
r) Travel sets for personal toilet.

Value for calculating limit:

Assessable value as per section 4 i.e. transaction value. When goods are assessed on basis of MRP the value will be determined under sec 4A.

Branded goods manufactured by small Units are not to be treated as SSI

Brand name or Trade name means any name or mark such as symbol, monogram, lebel, signature or invented word or writing which is used in relation to the goods for the purpose of indicating, or so as to indicate a connection in the course of trade. Brand name or mark or trade name may or may not be registered.

Some large units get their goods manufactured from small unit under their brand name or trade name. In such cases, the small unit will not be eligible for excise exemption.

But small unit is eligible to SSI exemption if he manufactures different goods under the same brand name.

SSI exemption is not available:

a) If brand name belongs to sister concern of a large unit,
b) If brand name belong to other SSI manufacturer,
c) If brand name belongs to non-manufacturing trader,
d) If manufacturer puts his own mark in addition to brand name of other,
e) If brand name belongs to related person of a large unit,
f) If brand name belongs to another unit of a large unit,
g) If brand name belongs to foreign person or a non-manufacturing trader,
h) If buyer uses the goods captively i.e not for sale.

Procedural Relaxations for those availing exemption:

a) Exempted small units having turnover below Rs. 150 lacs, they are exempt from provisions of registering their unit with Excise Authority;
b) For availing SSI exemption the unit has to file declaration to Assistant/Deputy Commissioner;
c) SSI unit availing SSI concession need not submit monthly return. They have to submit a quarterly return in ER-3 by 20th of the following month;
d) SSI units have to pay duty by 15th of the following month, except in the month of March;
e) SSI units not covered under excise provisions for the purpose of export i.e. they do not have to prepare ARE-1 form for export;
f) SSI units need not maintain any statutory records. Maintain private records only to establish that turnover has not crossed the exemption limit is sufficient;
g) SSI units need not maintain invoice under Rule 11 of Central Excise Rules, 2002. They should mention progressive turnover on the invoices to establish that turnover has not crossed the exemption limit.
h) Unit availing SSI exemptions are to file an annual declaration to the Assistant/Deputy Commissioner under Notification 36/2001-C.E. (NT).

If SSI unit pays normal duty without availing SSI concession, the procedural relaxation will not apply.

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