CHAPTER - VIII
Non-Levy of Duty

Rules 9 and 49 read with rule 173G of the Central Excise Rules, 1944, prescribe that excisable goods shall not be removed from the place of manufacture or storage unless the excise duty leviable thereon has been paid. If any manufacturer, producer or licencee of a warehouse, removes excisable goods in contravention of these rules or does not account for them, then besides such goods becoming liable for confiscation, a penalty not exceeding the duty on such excisable goods or ten thousand rupees, whichever is greater, is also leviable under rule 173Q. Similar provisions exists in rules 4 and 25 of the Central Excise Rules, 2002 which came into force from 1 March 2002 in place of Central Excise Rules, 1944. Some illustrative cases of non-levy of duty are given in the following paragraphs :

8.1    Non-levy of additional duty of excise

Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978, levies additional excise duty at the rate of 15 per cent of the amount of basic excise duty chargeable. For the purpose of determining additional excise duty, the basic excise duty chargeable is to be calculated after excluding any exemption for giving credit or for reduction of duty already paid on raw material used in the production or manufacture of such goods.

M/s. Birla VXL Limited (OCM Woollen Mills), in Amritsar Commissionerate of Central Excise, manufactured woollen yarn, artificial synthetic fibre and synthetic fibres and used them captively in the manufacture of woollen fabrics without payment of basic excise duty by availing exemption under notifications dated 16 March 1995 and 23 July 1996. The assessee also did not pay additional excise duty, which was leviable by working out quantum of basic excise duty chargeable after excluding the benefit availed through the above exemption notifications. This resulted in non-levy of additional excise duty of Rs.7.89 crore for the period April 1997 to June 2002.

Similar objection was featured in para 6.3 (i) of Audit Report 1996-97. The Ministry of Finance (the Ministry) stated (February 1998) that notification dated 16 March 1995 did not belong to the excluded category. Reply of the Ministry was not tenable since these notifications provided exemption if duty was already paid on raw material used in the production of finished goods thereby nullifying the cascading effect of duties. Hence these would fall under excluded category. The Ministry was requested (November 1999) to obtain the opinion of the Ministry of Law. The Ministry reiterated (November 2003) its earlier stand without obtaining the opinion of the Ministry of Law.

8.2    Duty not levied on excisable goods found short or destroyed

Rule 49(1) of the Central Excise Rules, 1944, prescribes that a manufacturer shall, on demand, pay the duty leviable on any goods which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural cause or by unavoidable accident.

8.2.1    Scrutiny of central excise records of M/s Steel Authority of India Limited, Bhillai, in Raipur Commissionerate of Central Excise, revealed that shortage of wire rods of 28,927 tonne for the years 1998-1999 and 1999-2000 noticed by the assessee during physical verification was adjusted in the month of April 2001 by reducing the balances in daily stock account (RG1) from 46215.724 tonne to 17288.724 tonne. Such a reduction in RG1 without payment of duty was in contravention of the rules and resulted in evasion of duty of Rs.5.55 crore.

On this being pointed out (January 2002), the Ministry stated (November 2003) that variation in stock between recorded quantity and on actual physical weighment in integrated steel plants was a common occurrence.

Reply of the Ministry is not tenable as such a reduction in production records by the assessee is not permissible under the rules.

8.2.2    M/s. Indian Iron and Steel Company, Burnpur, in Bolpur, Commissionerate of Central Excise, was permitted to account for the manufactured goods in their daily stock account (RG 1) register on the estimated weight of goods. On the other hand, the assessee used to maintain their clearances on the basis of actual weight. Due to adoption of two different models of weighment at two different stages, a wide variation occurred between the quantity of pig iron and semi flats recorded in the RG-1 register and the quantity finally cleared. Scrutiny of the report of annual stock verification for the year 1997-98 conducted jointly by the Department and the assessee revealed that the shortages were adjusted by reducing the closing balances of the products in the succeeding year 1998-99 without assigning any reason and without demanding any duty. This resulted in evasion of duty of Rs.1.73 crore.

On this being pointed out (August 2000), the Ministry while admitting the objection stated (August 2003) that two show cause cum demand notices for Rs.1.77 crore had been issued.

8.3    Non-levy of special excise duty

Special excise duty at the rate of 16 per cent ad valorem is leviable on all petroleum products falling under sub-heading 2710.19 with effect from 1 March 2002.

M/s. Haldia Petrochemicals Limited, Midnapore, in Haldia Commissionerate of Central Excise, manufacturing different excisable products cleared C6 raffinate under sub-heading 2710.19 without payment of special excise duty at the rate of 16 per cent ad valorem. This resulted in non-payment of duty of Rs.1.26 crore during the period from March to October 2002.

On this being pointed out (November 2002), the Ministry admitted the objection (October 2003).

8.4    Duty not levied on goods remade

Rule 173-H of the Central Excise Rules, 1944, states that an assessee may, subject to such conditions as may be specified by the Commissioner, retain in, or bring into, his factory or ware-house, excisable goods or parts thereof, accompanied by duty paying document, within a period of one year from the date of their initial removal from the factory or warehouse or within the period of warranty or guarantee which ever is more if such goods or parts thereof need to be re-made, refined, reconditioned, repaired or subjected to any similar process in the factory. Such goods and parts thereof if not subjected to any process amounting to manufacture, can be removed from the factory or warehouse without payment of duty subject to such conditions as may be specified by the Commissioner.

M/s. Glass Equipment (India) Limited, Bahadurgarh, in Rohtak Commissionerate of Central Excise, engaged in the manufacture of glass forming machineries and parts thereof, received back machines sold by him to M/s. Hindustan National Glass Industries Limited during the past period ranging from 5 to 15 years, for overhauling, reconditioning, repairing etc. under rule 173-H. These goods were cleared after repairing, overhauling and reconditioning involving manufacturing process. Assessee also received Rs.54.98 lakh for the said work undertaken in 1996-97 and 1997-98 but excise duty leviable thereon was not paid. As the goods were received back after the expiry of prescribed period and were not accompanied by duty paying documents, duty was recoverable on those goods.

On this being pointed out (February 1999), the Ministry admitted the objection and stated (October 2003) that demand of Rs.97.17 lakh for the period from April 1996 to January 2001 had been confirmed, besides imposing penalties of Rs.89.95 lakh under section 11AC and Rs.7.33 lakh under rule 173Q.

8.5    Non-levy of duty on excisable goods used captively

Under procedure set-out in chapter X of the Central Excise Rules, 1944, an assessee can procure raw materials on the strength of a certificate (CT-2) without payment of duty for utilization only for the purpose specified in the said certificate failing which the duty at the appropriate rate would become payable.

M/s. Krishak Bharati Co-operative Limited, in Surat I Commissionerate of Central Excise, manufacturing fertilisers falling under chapter 28 had procured aromatic rich naptha and natural gasoline liquid under chapter X procedure without payment of duty for use in the manufacture of fertilisers. Out of those inputs, the assessee manufactured steam, de-mineralised water and treated water and cleared them to Hazira Ammonia Extension Plant without payment of duty to manufacture products other than fertilisers during the period between December 1998 and March 2002. As the said goods were used for other than the purpose for which they were procured, duty was leviable thereon.

On this being pointed out (August 2002), the Ministry admitted the objection and stated (October 2003) that two show cause notices for Rs.63.48 lakh for the period from September 1997 to March 2003 had been issued.

8.6    Non-levy of duty on excisable goods cleared

Under rule 4 of the Central Excise Rules, 2002, every person who produces or manufactures any excisable goods shall pay duty leviable on such goods in the manner provided in rule 8, and no excisable goods shall be removed without payment of duty from any place where they are produced or manufactured. On failing to do so, the person shall be liable to a penalty not exceeding the duty on such goods or ten thousand rupees whichever is greater under rule 25 of the said rules.

M/s. U.P. State Sugar Corporation, in Allahabad Commissionerate of Central Excise, manufactured sugar falling under heading 17.01 and cleared 100303 quintals sugar (free sale) during April 2002 and May 2002 and paid duty on 27208 quintals only. This resulted in non-levy of duty of Rs.62.13 lakh on 73095 quintals of sugar. The assessee was also liable to pay penalty of Rs.62.13 lakh for contravening the provisions of the rules and interest of Rs.9.86 lakh upto May 2003 under section 11AB of the Act.

On this being pointed out (March 2003), the Ministry while admitting the objection stated (October 2003) that the matter was noticed by range officer in September 2002 and a show cause notice for Rs.62.13 lakh had been issued in May 2003.

The fact remains that the show cause notice was issued only after being pointed out in audit.

8.7    Other cases

In 159 other cases of non-levy of duty, the Ministry/the Department had accepted objections involving duty of Rs.3.26 crore and reported recovery of Rs.2.04 crore in 142 cases till February 2004.