Ssi Benefit

INDIRECT TAXES -

VINAY KUMAR SHRAFF B. Com(H), ACA, AICWA, ACS

MISCONCEPTIONS ABOUT SSI BENEFIT UNDER CENTRAL EXCISE There are two alternative set of schemes under central excise which enables manufacturing units to either make clearance upto a turnover of one crore under nil rate of duty( without availing cenvat credit on inputs) or they can make clearance upto a turnover of one crore on payment of sixty percent of normal rate of duty ( by availing cenvat credit on inputs). These schemes are guided by notification 8/2000 & notification 9/2000 respectively. These are both mutually exclusive schemes & a manufacture can choose either of the two schemes. A manufacturer has to make a declaration about his choice at the beginning of the financial year. He also has the option not to avail the exemption & instead pay at the rate of normal rate of duty but such option cannot be withdrawn during the remaining part of the financial year to avail exemption under notification 8/2000. However he can opt for exemption under notification 9/2000 during a financial year withdrawing his option to pay at normal rate of duty or exemption under notification 8/2000. Once opted, option under notification 9/2000 however can not be withdrawn during financial year to opt for paying at normal rate of duty or avail exemption under notification 8/2000. Some popular misconceptions have developed about the above benefits which are presented below:Is SSI benefit ( popularly so called) restricted to SSI units only? There is a myth prevailing that these benefits are available to SSI units only. But the notification 8/2000 & the notification 9/2000 which empowers a manufacturer to avail the above benefits nowhere uses the word SSI while defining the eligibility criteria. The Central Excise Act, 1944 & The Central Excise Rules, 1944 also does not define the word SSI. The condition prescribed by the notification 8/2000 & notification 9/2000 for availing the exemption is that:“The aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturer should not exceed three crore in the preceding financial year”. It further specifies that for the purpose of determining the aggregate value of clearances for home consumption, the following shall not be taken into account, namely :a) clearances, which are exempt from the whole of excise duty leviable thereon ( other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason; b) clearances bearing the brand name or trade name of another person which are ineligible for exemption under both the above notifications; c) Clearances of specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of specified goods;

d) Clearances of strips of plastics used within the factory of production for weaving of fabrics or for manufacture of sacks or bags made of polymers of ethylene or propylene. Hence even a large scale unit which is manufacturing both excisable & non excisable goods( or goods which attracts nil rate of duty) or a large scale unit which is manufacturing goods both under their brand name as well as the brand name of others are entitled for this benefit provided their sale of excisable goods or sale of goods of their own brand is less than three crores in the preceding financial year ( This benefit will however be restricted to the goods of their own brand & will not be extended to the branded product of others). Let us take an example of a unit manufacturing milk & milk products like milk powder, butter, cheese, ghee & condensed milk put up in unit containers. Milk powder, butter, cheese & ghee attracts nil rate of duty whereas condensed milk put up in containers attracts 16% rate of duty. In this case even if the manufacturing unit is a large scale one but the clearance for home consumption of condensed milk put up in containers is less than three crores in the preceding financial, than it will be eligible for exemption described above. A export oriented large scale unit which also sells their product in the local market can also avail this benefit provided their sale from home consumption is less three crores. Moreover a large scale unit, whatever be their investment, can avail these benefits in the first year of their operation as there is no previous year as such. Is exemption under notification 8/2000 generally better than notification 9/2000? The second misconception is really a error of judgement committed by the manufacturers while making a selection between the alternative set of schemes under notification 8/2000 or notification 9/2000. The manufacturers generally prefer to go for benefit available under notification 8/2000 as it apparently looks attractive because a manufacturer is not required to pay any duty upto a clearance of one crore & also it is relatively hassle free considering the fact he is not required to obtain registration. But it has been seen in a number of cases that they looses a substantial sum of money if their turnover crosses the mark of one crore as they cannot avail cenvat credit on inputs under this scheme upto a turnover of one crore. A manufacturer should make a financial calculation, at the beginning of a financial year, of whether any surplus cenvat credit on inputs is remaining after utilisation of cenvat credit for making the payment of duty on turnover upto one crore, if he opts for notification 9/2000. If any surplus cenvat credit remains it can be utilised for paying the duty on turnover beyond one crore. The method which can be adopted to make the above financial calculation is illustrated below:-

Illustration Let us take for an example unit ‘A’ which manufactures an item ‘X’ attracting 16% rate of duty. Their turnover for financial year 2001-2002 is expected to be Rs. 2.5 crores. The sale price of the above item is Rs. 25/ per unit. The raw materials, on

which cenvat credit can be availed, required for the manufacturing of above items is P, Q, R & S. They are used in the ratio of 0.5: 0.25: 0.15: 0.15 per unit of output. The price per unit of input is Rs. 19.50, Rs. 20, Rs 15, & Rs. 18 respectively. The rate of duty on all inputs is 16%. For a turnover of Rs. 1 crore no. of units sold will be Rs. 1crore/Rs. 25 i.e. 4 laks of units. The consumption of raw material for manufacturing of 4 lakh units will be :P – 4lakh units X 0.5 = 2 lakh units. Q – 4 lakh units X 0.25 = 1 lakh units. R – 4 lakh units X 0.15 = 0.6 lakh units. S – 4 lakh units X 0.15 = 0.6 lakh units. The cenvat available on the above will be :Rs. P – 2 lakh units X Rs.19.5 X 16% = 624000 Q – 1 lakh units X Rs. 20 X 16% = 320000 R – 0.6 lakh units X Rs. 15 X 16% = 144000 S – 0.6 lakh units X Rs. 18 X 16% = 172800 Total Cenvat = 1260800 In the above case if the manufacturer opts for notification 9/2000 then duty which will be required to be paid for a turnover of 1 crore will be Rs. 960000 ( i.e.1 crore X 16% X 60%.) Which means a surplus of Rs. 300800 of cenvat credit remains after paying the duty of Rs. 960000 on a turnover upto one crore & the surplus may be utilised by him for paying duty on sale beyond one crore. So in this case opting for notification 9/2000 is better.

Is cenvat credit on capital goods available under notification 8/2000? The third misconception has arisen out of general use of term that cenvat credit is not available under notification 8/2000. The general understanding is that cenvat credit can not be availed on both inputs & capital goods if a manufacturer opts for notification 8/2000. However it has been stated in the notification 8/2000 that the manufacturer can not utilise the cenvat credit on capital goods for payment of duty on clearances upto one crore which means that though cenvat credit on capital goods can be availed from the beginning of the financial year itself but it can only be utilised for the payment of duty on clearances beyond one crore.