05 December 2017

Exemption based on location of unit – Some recent developments

In some of the recent developments in respect of units which were earlier availing exemption under various area-based exemption schemes, CBEC has prescribed procedure for manual filing of refund under new budgetary support scheme under the GST regime, while Supreme Court of India has allowed exemption (refund) of Education Cess also under the erstwhile Central Excise notifications. CESTAT Chandigarh has rejected department’s contention that refund under such scheme cannot be considered as part of value addition.


Budgetary support (Refund) for units earlier availing area-based exemption

CBEC has issued Circular No. 1060/9/2017-CX, dated 27-11-2017 prescribing procedure for manual filing and processing of refund claims (budgetary support claims) relating to first quarter ending Sept., 2017, by units which were earlier availing area based exemption.

Refund of GST is limited to 58% of CGST or 29% of IGST paid in cash. Application for registration for availing the benefit shall be filed which will be verified by jurisdictional Central Tax authority. Eligible units after registration shall file application for refund and physical inspection of units will be carried out before sanction of refund. Provisional refund for six months will be available if inspection could not be conducted.

This benefit is available to such units, located in J&K, Uttarakhand, HP, and North East including Sikkim, for the residual period for which the unit would have operated under earlier schemes.


Refund of Education Cess under area based exemption

Supreme Court of India has allowed refund of Education Cess and Secondary and Higher Secondary Education Cess which were paid along with Central Excise duty, once said excise duty itself was exempted in case of units located in North-East States and in J&K.

Relying on two CBEC Circulars, the Apex Court in the case of SRD Nutrients Private Limited v. Commissioner, was of the view that when excise duty is exempted, Education Cess in nature of surcharge, partaking character of excise duty, would also be exempted. It was held that there cannot be any surcharge when basic duty itself is Nil.

The Court in this regard in its judgement dated 10-11-2017 also reiterated that if two views are possible, one in favour of assessee has to be adopted.


Area based exemption – Computation of value addition

CESTAT Chandigarh has held that when an amount of duty was refunded to the assessee, under Notification No. 1/2002-C.E., the same had to be deducted from the Central Excise duty paid by the assessee while arriving at actual value addition. Revenue department’s contention that refund under the said notification cannot be considered as part of value addition, being an incentive, was hence rejected by the Tribunal in the case of Kangaro Industries Limited v. Commissioner.

Assessee’s contention for inclusion of outward freight was also upheld by the Tribunal. The dispute involved fixing of special rate of value addition under Notification No. 1/2002-C.E.


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