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An overview of New Rules

S. ThirumalaiWHILE introducing the Finance Bill, 2001, in his Budget speech, the Finance Minister, Mr Yashwant Sinha, had proposed the substitution of the existing Central Excise Rules, numbering about 234 Rules, with a shortened version of 31 Rules that were ``assessee-friendly''. The existing Rules relating to CENVAT (Rules 57AA to AK), Appeals (Rules 213-219) and Settlement Commission (Rules 220 to 220 C) are to be separately notified. The 31 Rules have been notified vide notification no. 9/2001 -- C E (NT) dated March 1, and will come into force on July 1 and hereinafter be called the ``New Rules''.

The Central Excise Act 1944 contains 40 sections and over the years the Central Excise Rules have been enlarged to include separate procedures affecting commodities subject to Self Removal Procedure (called self assessment procedure since October 1996) a nd Physical Control (for eg, for such commodities as cigarettes, under Chapter V). Chapter VII A is specific to the Self Removal Procedure and in the case of conflict with any other rules, the Chapter VII A Rules would acquire precedence.

Self removal/physical control: One key feature in the New Rules is that the distinction between the Self Removal Procedure and Physical Control is to be done away with.

Budget day: Special procedure on the Budget day and the regulations therefore under the existing Rules have been done away with. Unlike other statutes under the direct tax law which takes effect after the Presidential assent to the Finance Bill, in indir ect tax laws (Customs, excise, etc) whenever a declaration is made with reference to a specific clause in the Finance Bill, under the Provisional Collection of Taxes Act, 1931, the levy becomes applicable at midnight on the day of the presentation of the Finance Bill in Parliament. This regulation is meant to curb the possibility of hoarding and profiteering that may be indulged in by trade and industry. It safeguards the interests of Revenue to collect the duty on the goods lying with the manufacturer on Budget Day, for they may become liable to higher duty in the case of increases proposed in the Finance Bill.

Provisional assessment: Rule 7 of the New Rules corresponds to Rule 9B of the existing Rule. The existing Rules prescribe that the principles of ``unjust enrichment'' shall apply if the assessee is entitled to a refund after the goods are finally assesse d and after the duty paid provisionally has been adjusted against the duty payable on such finalisation. The New Rules do not extend the principles of unjust enrichment under Sec IIB (2) to any refunds that may hereafter arise after the final assessment. The New Rules do not specifically provide that the Assistant Commissioner or Deputy Commissioner of Excise may order provisional assessment whenever it is felt necessary.

Dealer invoice: For purposes of credit under CENVAT Rules `Dealer invoices' issued under Rule 52AA of the existing Rules are acceptable as documents. There is no specific provision in the New Rules for issue of `Dealer invoices'. This is an important mat ter. However, the omission to include a corresponding Rule will not be conducive to the general principle of elimination of discretion in tax administration.

SSI's: Small-scale units have traditionally enjoyed certain privileges in the matter of submission of returns, maintenance of records and inspection apart from concessional tariffs and facility with regard to the payment of duty. Under Rule 12 of the New Rules there is no separate provision for SSIs to file quarterly returns as at present. The New Rule as it stands would require all assessees to file their returns by the 10th of the following month. This may impose an additional burden on small-scale un its.

Return of goods: The prescription in the New Rule 16 to pay duty on goods returned when subsequently removed after their return into the factory by debit to account current will place a burden on SSI units in particular. This is because the credit is to be taken in the CENVAT Account at the time of the original return of the goods into the factory. The better procedure would be to allow the assessee to pay duty either by debit to CENVAT or through the account current so that there are no additional, uni ntended duty liabilities that may get imposed on small assessees in particular.

Exports: A separate procedure as in the existing Rules 173 MM, read with Rule 97B, for export goods is necessary so that export goods do not have to bear additional transaction costs by virtue of the procedure to go through the CENVAT credit and removal after payment of duty. If the exporter is unable to adjust the credit against his domestic clearances then the CENVAT credit will in any case be refunded to the exporter in cash. This is an unnecessary burden on exporters due to a change proposed in the prescribed existing procedure.

For exports under the existing Rules there is provision for the grant of rebate on duty paid on the excisable goods and duty paid on the manufacture of goods. It appears that Rule 18 of the New Rules may restrict this only to either of the aforesaid duti es by reason of the way the Rules are worded. This will have to be remedied so that it does not result in any unforeseen difficulties.

The bond movement of materials, as in the existing Rule 13(1)(b) for use in export manufacture, is necessary to avoid, among others, the effects of State sales tax on the goods that may become applicable. If any of the existing procedures with respect to movement of export materials is altered, then there could be additional transaction costs, resulting in exports becoming uncompetitive to that extent.

Confiscation and penalty: A confusion that has been carried through in the New Rules is with respect to the levy of penalty in a case where the limit of such penalty is mandatorily determined under Section 11AC of the Central Excise Act. Under the existi ng Rules, Rule 209 is pressed into service for the levy of penalty on those not under self-assessment, and Rule 173Q for self-assessment cases. As discussed earlier, the distinction between self assessment and physical control is to be done away with und er the New Rules. Rule 209 under the existing Rules is ``subject to the provisions of Sec 11AC and notwithstanding anything contained in any other provision of these rules save and except Rule 173Q''. The existing Rule 173Q is also subject to Section 11A C. However, there is no exception for the operation of Rule 209. Rule 173Q of the existing Rules occurs in Chapter VII A, and, as discussed earlier, if there is a conflict between the provision of this chapter and any other chapter then the provisions of this chapter alone shall prevail. In view of this clear position under Rule 173A, there was no need to include Rule 173Q while covering penalties for non-Chapter VII A goods under Rule 209. In the past, this has led to adjudicating authorities levying p enalty separately under Sec 11AC to the extent of duty evaded and again under Rule 173Q or Rule 209, as the case may be. In Rule 25 of the New Rules, it should be clarified that if a penalty is levied under Section 11AC, then no separate penalty under Ru le 25 will become applicable.

Supplementary instructions: It has been clarified in the context of Rule 233 of the existing Rules that no new obligations can be cast for payment of duty by these instructions.

With so much of the procedure getting compressed to 31 New Rules, there are many areas that will come under supplementary instructions in terms of New Rule 31 or the procedure under New Rule 19(2) for exports or the monthly return in `proper form' under New Rule 12 or account current under New Rule 8(4). There should be a mechanism in the CBEC (Central Board) to maintain uniformity in instructions among various commissioners. There should be a mitigation mechanism for procedures as between the commissio nerates that may tend to discriminate the assessees in the respective jurisdictions.

Key omissions: The special procedure for the textile industry under the existing Rule 96 E / 96 EE and for the cement industry for replacement of defective duty paid cement (Rule 96ZV), are key industry specific facilities to later to particular needs. R emoval of these may add to the `transaction costs'.

Rule 233 A of the existing Rules is meant to protect the assessee and it operated as a defence to the assessee against confiscation of property, without a show cause notice and due procedure being followed. There is no corresponding protection under the New Rules. One hopes that natural justice will be part of these new assessee-friendly rules.