Amend Credit Rules retrospectively for clearances to SEZ Developers

NEW DELHI. 26th December 2008.

It is learnt that Empowered Group of Ministers in its meeting held on 24th October 2008 has decided that the Department of Revenue should amend CENVAT Credit Rules 2004 to ensure that the benefit of non-reversal of CENVAT credit is not denied to the domestic manufacturing units in case of supplies made from DTA to SEZ Developers but till date no such amendment has been issued. 

The delay in issue of clarificatory amendment in credit rules has resulted in unwarranted litigation at a time when SEZ Projects are already heading for a slowdown. Though Finance Ministry is already seized of the matter but how much time it will take in decision making is anybody’s guess. It is high time that a retrospective clarificatory amendment is done by the Ministry to include “SEZ Developer” in the term “SEZ Unit” used in Rule 6 (6) of CENVAT Credit Rules so that the dust is settled on the issue. 

Though clearances from a Domestic manufacturing unit to SEZ Units and SEZ Developers are treated at par and the benefit of deemed export is admissible in both the cases; the Central Excise Department has slapped notices to hundreds of manufacturers asking them to reverse CENVAT Credit at the rate of 10 per cent on clearances made to SEZ Developers as there is an anomaly in existing CENVAT Credit Rules.

Rule 6 of CENVAT Credit Rules provides for obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services and the the CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule ( 2  ) and (3)which provide that the manufacturer of goods shall pay an amount equal to ten per cent. of value of the exempted goods

Sub-rule (6) provides as under:

“(6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-

(i)        cleared to a unit in a special economic zone; or

(ii)       cleared to a hundred per cent. export-oriented undertaking; or

(iii)      cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

(iv)      supplied to the United Nations or an international organization for their official use or supplied to projects funded by  them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95-Central Excise, dated the  28th August, 1995, number G. S R. 602 (E), dated the 28th August, 1995; or

(v)       cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

(vi)      gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture  of copper or zinc by smelting; or

(vii)     all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of notification No. 6/2002-Central Excise dated the 1st March, 2002 or notification No. 6/2006-Central Excise dated the 1st March, 2006, as the case may be.”

Though the intention of the Government is to allow benefits at par to SEZ Units and Developers; the excise authorities go for their own interpretation which is more favourable for them. Though Hon’ble Finance Minister is very busy being PM; it is expected a decision to grant benefit with retrospective effect will soon be taken on the issue

(Source: Allindiantaxes)



  1. sairam said,

    February 3, 2009 at 1:39 pm

    Has it been done already?

  2. KC Sairam said,

    February 4, 2009 at 6:11 pm

    As demanded by AIT, FinMin has amended CENVAT Credit Rules to allow the benefit of non-reversal of credit on excisable goods cleared by manufacturers to SEZ Developers. Rule 6 of CENVAT Credit Rules has been amended by Notification No.50/2008-Central Excise(Non-Tariff) dated 31st December 2008 as under:
    “Notification No. 50 / 2008-Central Excise (N.T.)
    New Delhi the 31st December, 2008
    G.S.R. (E).- In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1 of 1944) and section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely:-
    1. (1) These rules may be called the CENVAT Credit (Third Amendment )Rules, 2008.
    (2) They shall come into force on the date of their publication in the Official Gazette.
    2. In the CENVAT Credit Rules, 2004, in rule 6, in sub-rule (6), for clause (i), the following clause shall be substituted, namely:-
    “(i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or” .

    DOES THIS MEAN THAT OLD CASES PRIOR TO NOTIFICATION WILL ATTRACT 10% and this notification is only applicable for new cases

    kindly clarify

    • January 26, 2010 at 9:13 pm

      Principal Bench of CESTAT(Customs Excise and Service Tax Appellant Tribunal) has stayed the demands confirmed against M/s Nuchem Limited for non-payment of amount equal to 10 per cent of total value of goods on clearances to SEZ Developers. The manufacturer was asked to pay the amount under Rule 6 of CENVAT Credit Rules.

      • Anonymous said,

        May 29, 2012 at 5:46 pm

        Dear Sir,

        Has the final order passed on this issue? or still matter is lingering.


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