February Rate Changes - Effect

NOTE ON DUTY RATES UNDER CENTRAL EXCISE- 24.02.2009 Madhukar N Hiregange FCA & Vinay K.V. ACA The Government has been concerned about the impact of the global financial crisis on the Indian economy and a couple of steps have been taken to deal with this problem. On the monetary side, the RBI has sought to pump in sufficient liquidity into the banking system to enable banks to meet the requirements of the economy keeping in mind the contraction in credit from non-bank sources. Banks have been provided adequate liquidity to meet requirements in terms of lending. Reduction in the lending rates has also been signaled. These are being supplemented by fiscal measures designed to stimulate the economy. One such Fiscal measure is reduction in Cenvat rate with a hope of boosting demand. We want to bring to your kind attention the changes in the Cenvat rate notified with effect from 24.02.2009. One notification have been issued in this regard - Notification No: 04/2009-Central Excise, dated February 24, 2009 which have reduced the Central Excise duty by 2% across items in the Central Excise Tariff where the duty rate was 10%. It is hoped that the reduction of duty rates would help the economy in achieving a growth rate of 7% as predicted. The following list makes comparison of the old rates & rates applicable w.e.f. 7th December, 2008. (The amendments made in the said notification is provided in annexure) Old duty rate Effective New duty rate with effect from 24.02.2009 10% 8% 8% 8% 4% 4% We have analyzed various situations one may come across and the possible solutions. For purpose of giving example we have assumed the old rate applicable as 10% and new rate applicable w.e.f 24th February 2009 as 08%. 1. Manufactured goods are Factory : In such case manufacturer has to pay new duty of 8% applicable to him for removals on or after 24th February, 2009. Duty is charged at the rates prevailing on the date of removal from manufacturer’s premises. 2. Goods sent on approval basis / testing basis: In such case for removals on or after 24th February, 2009 the new rate of 08% is applicable. However Department may not accept this view unless documentation proves that there was an agreement only after the relevant date. 3. Goods transported to Depot & lying in stock. The rate applicable is old rate of 10% and manufacturer can not enjoy benefit of reduced CENVAT of 8%. In this case date of removal considered is the date of removal from manufacturer’s premises. 4. Goods manufactured and removed on or after 24th February 2009. The new rate of 8% is applicable. 5. Goods sold prior to 24th February, 2009 but invoice raised on or after 24th February, 2009 inadvertently. The old rate of 10% is applicable. 6. Goods sold on piecemeal basis. In such case transport will be through many consignments. In such cases one main invoice will contain all details & other invoices will be made, containing details of individual consignment. As the main Invoice is raised before 24th February, 2009 the rate applicable is old rate of 10% and disclosures regarding removal should be given. 7. In case of dealer having stock of goods (charged @10%) there is no relief. Customer may find dealer’s price costly. Where rate cuts takes place and are passed on by the dealers the higher amount of credit which will be passed on could be an advantage. 8. Invoice is raised on 23rd February 2009 & goods are leaving the factory on 25th February, 2009. Old invoices should be cancelled & cancelled invoices should be preserved. New invoices are to be raised, charging new rate of 08% with reason for canceling the Invoice. Documentation for transportation is to be retained to prove removal after the relevant date. Annexure Sl no Notification no and date Amendments 1 3/2006-CE dated 1st March 2006 In the said notification wherever the entry is 10%, the same is replaced by 8%. 2 4/2006-CE dated 1st March 2006 For the entry higher of 10% or Rs 290 per tonne is replaced by higher of 8% or 230 per tonne. For the entry 10% of the value of material if any added and the amount charged for such manufacture wherever it occurs , it will be replaced by 8% of the value of material, if any added and the amount charged for such manufacture 3 5/2006-CE dated 01.03.2006 In the said notification wherever the entry is 10%, the same is replaced by 8%. 4 6/2006-CE dated 01.03.2006 In the said notification wherever the entry is 10%, the same is replaced by 8%. For the entry 10%+Rs 10000 per chassis, it will be replaced by 8%+Rs 10000 per chassis 5 2/2008-CE dated 01.03.2008 In the said notification wherever the entry is 10%, the same is replaced by 8% except for serial nos 14,16 and 18. For the entry 10%+Rs 10000 per chassis, it will be replaced by 8%+Rs 10000 per chassis and 18