Procurement of HSD – Refund/Exemption of Excise duty to Exporters

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OCTOBER 15, 2018 – Tax India Online          

By S C Jain, Managing Partner, RSA Legal Solutions

THIS article highlights a key benefit of refund of Excise duty paid on procurement of HSD for use in the manufacture of export products, which majority of manufacturing exporters in India are not claiming or are unaware about after transition into the GST regime.

Rebate of excise duty on HSD:

  • The intention of the Indian Government has always been to export the goods and not to export the taxes at input stage or finished goods This article’s focus on to get the refund/exemption of excise duty at the input stage particularly on HSD used as fuel to generate electricity which in turn is used to manufacture the export item. In the erstwhile central excise regime, the manufacturing exporters were entitled to rebate of central excise duty suffered by them at the input stage (on inputs procured by them on payment of central excise duty), under Rule 18 of the Central Excise Rules, 2002. For ready reference, relevant portion of this provision has been quoted below:

“Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfilment of such procedure, as may be specified in the notification.”

  • The Government had issued Notification No. 21/2004-CE(NT) dated 06.09.2004 specifying the procedure, terms and conditions for availing this rebate at input
  • Given the above, all exporters manufacturing excisable goods (which were subject to excise duty payment) or manufacturing non-excisable/exempted goods (goods which were either not subject to payment of excise duty or which were exempted) were entitled to rebate of excise duty suffered by them on their inputs used in the manufacture of export
  • On implementation of the GST regime, which has been made applicable to all products except few products such as High-Speed Diesel (HSD), petrol, (non-GST items), major overhauling was done with the central excise law provisions by virtue of the Taxation Laws (Amendment) Act, 2017. The Central Excise Act, 1944 was fine-tuned by this Taxation Laws (Amendment) Act to limit its application and levy of central excise duty to the limited items specified in the fourth schedule to the Central Excise Act. In furtherance of the same, the Central Excise Rules, 2002 were rescinded and superseded with the Central Excise Rules, 2017.
  • Thus, as on date many manufacturing exporters who are procuring non-GST items (such as HSD for power generation), are suffering central excise duty, charged by the manufacturer of HSD at the input stage for use in the manufacture of export items. This leads to a million-dollar question as to whether, under the GST regime, there is any mechanism to compensate the exporter for the excise duty suffered at the input stage on the procurement of non-GST items like Whether there is any safeguard put in by the Government to further its intention of ‘export of the goods, and not the taxes’, under the GST regime.
  • Gratefully, the answers to the above questions are in Under the new Central Excise Rules, 2017, the Government in Rule 18 therein has allowed rebate of central excise duty suffered on excisable inputs like HSD (non-GST items), which are used in the manufacture of export items. For ready reference, relevant portion of this provision has been quoted below:

“Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfilment of such procedure, as may be specified in the notification.”

  • It is noteworthy that the above provision provides for rebate of duty paid on materials used in the manufacture of export goods and not merely on ‘excisable goods’. Meaning thereby that rebate of excise duty on inputs will be available under this provision irrespective of the fact whether the export item is excisable or non-excisable.
  • Here it will not be out of place to refer to the following definition of ‘excisable goods’ and ‘goods’ under Section 2(d) of the Central Excise Act, as amended vide the Taxation Laws (Amendment) Act, 2017:

“excisable goods means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;

Explanation – For the purposes of this clause, ‘goods’ includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.”

  • The above definitions strengthen our understanding that rebate under Rule 18 of the Central Excise Rules, 2002 will be available on the inputs used in the manufacture of all export goods whether the same are excisable goods or non-excisable
  • In fact, Rule 18 relating to rebate under the Central Excise Rules, 2002 and under the Central Excise Rules, 2017 is same. No change has been made in the language of this rebate related provision. Given this, it will be prudent to refer to the situation existing under the erstwhile Central Excise Rules, 2002wherein rebate on inputs was made available even on export of non-excisable products such as rice, Rebate of duty suffered on inputs (such as packing material, etc.) used in the manufacture of such non-excisable product (rice) was allowed and never objected to by the central excise authorities.
  • Therefore, even under the GST regime, on export of non-excisable products (which are covered under the GST regime and not subject to excise duty payment) the manufacturing exporter will be entitled to rebate of central excise duty suffered on procurement of non-GST inputs such as HSD (which are used in the manufacture of non-excisable items to be exported outside India).
  • Since no new notification has been issued under Rule 18 of the new Central Excise Rules, 2017, by virtue of Rule 35 of the Central Excise Rules, 2017, the earlier Notification No. 21/2004-CE(NT)will continue to be applicable and rebate under Rule 18 will be subject to various conditions prescribed under this
  • To our surprise, majority of exporters are not availing this benefit which is clearly available and is in accordance with the intention of the Government to ‘export goods, and not the taxes’ outside India. Therefore, subject to certain conditions specified under Notification No.21/2004-CE(NT) this benefit is available to all exporters exporting non-excisable products (Say all GST items) who have suffered central excise duty at the input stage on the items like HSD

Procurement of HSD without payment of excise duty:

  • Likewise, excisable inputs like HSD can be procured without payment of excise duty for the use in the manufacture of the export goods in terms of Rule 19(2) of the Central Excise Rules, The various conditions and procedures are specified in Notification No. 43/2001-CE (NT) dated 26.6.2001 would apply for such procurement of HSD without payment of excise duty. Apparently, all exporters who have generators in the factory for generation of power and use the HSD for such generation can take the benefit of procurement of HSD without payment of excise duty under Rule 19 (2) of Central Excise Rules, 2017.
  • In Nutshell, all exporters working under the GST regime can procure the excisable inputs like HSD from the refineries (manufacturers of HSD) either under claim of rebate or without payment of excise duty in terms of Rule 18 or Rule 19 of the Central Excise Rules, 2017 as discussed It should be borne in mind that the HSD should be used as an input (which includes fuel).
  • It is further clarified that availment of benefit under Rule 18 or Rule 19 on the materials used in the manufacture of export goods will not disentitle an exporter from claiming the duty This is for the reason that duty drawback (AIR) is conferred only for the basic customs duty portion and not for the excise duty portion on the inputs. More so, the condition of non-availment of benefit of Rule 18 or Rule 19 under the Notes to duty drawback schedule has been removed in the current duty drawback schedule specified by Notification No. 89/2017-Cus. (NT) dated 21.9.2017. Thus, there is absolutely no anomaly or violation in getting the duty drawback along with the procurement of HSD either under the claim of rebate of excise duty or procurement thereof without payment of excise duty as stated above.
  • Likewise, an exporter can avail the benefit of advance authorization with the benefit of HSD under Central Excise law because Notification No. 18/2015-Cus dated 1.4.2015 dealing with the advance authorization scheme does not place any

(The author is Managing Partner, RSA Legal Solutions and the views expressed are strictly personal.)

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