SSI units availing exemption from central excise are facing peculiar situation now-a-days with regard to manufacture of goods bearing the trade name / brand name of others.

Some of these are discussed as under:

Situation one

All industry and trade has welcomed the move of the Central Government relaxing the Scheme of SSI exemption allowing the unit to manufacture and clear the goods bearing the brand name or trade name of another person if they are in the nature of packing materials, namely, printed cartons of paper or paper board, metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks and metal labels. The relaxation was given by notification no. 47/2008 dated 1-9-2008 with an amendment to notification no. 8/2003 dated 1-3-2003

But, at that time while drafting the notification the benefit was not extended to goods packed in "plastic bags" bearing the brand name and trade name of others.

Now, vide notification no. 2/2009 CE dated 11-2-2009 the benefit extended to SSI units using the plastic bags bearing the brand name / trade name of others (notification no. 8/2003 dated 1-3-2003 amended)

Situation two

An SSI unit allowed to avail full exemption on goods manufactured not bearing the brand name / trade name of others. Simultaneously such SSI units can clear the goods bearing the brand name / trade name of others and pay applicable duties of central excise.

Therefore, to pay duties of central excise on goods being the brand name of others, such SSI units are availing Cenvat Credit on inputs used in manufacturing of such goods.

Addressing the issue of cenvat credit, notification no. 8/2003 has been amended vide notification no. 2/2009 with the intention to allow the SSI units to avail Cenvat Credit on clearance of goods bearing the brand name / trade name of others on which duties of excise is being paid.

It is welcome step.

But the question of concern is the circular (instruction) F No. 21/01/2006-CX-I dated 19-1-2009 in which CEBC has contradicted the above amendment by stating that:

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"2. SCNs have been issued citing the judgment of Apex Court in the case of Ramesh Food Products, 2004(174) ELT 310 (SC) [=2009 -TMI - 32432 - SUPREME COURT OF INDIA].  In the case of Ramesh Food Products, it was held by the Supreme Court that under Notification No.175/86-CE, simultaneous availment of credit of duty paid on inputs used in the manufactured of branded (others) dutiable goods  and availment of full exemption for non-branded goods is not permissible.

3. Subsequently, in the case of Nebulae Health Care Ltd vs. Commissioner of Customs, Chennai, 2006-TIOL-1380-CESTAT-Mad [=2009 -TMI - 32433 - CESTAT, CHENNAI], the Tribunal has held that simultaneous availment of credit for inputs used in the manufacture of branded products and of full exemption for other products is permissible under the subsequent SSI exemption Notification Nos. 8/99, 9/99, 8/2000, 8/2001, 8/2002 and 8/2003.  In the said judgment, the Tribunal discussed the Supreme Court judgment in Ramesh Food products case at length, and held that Supreme Court decision was not applicable to present case where the notifications under consideration were differently worded.

4. An appeal has been filed before the Supreme Court against the decision of the Tribunal in the case of M/s Nebulae Health Care Limited.  This appeal has been admitted."

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In view of the above circular, since there was a decision of the CESTAT elaborating the above issue, what was the difficulty before the board / central government in allowing simultaneous benefit of SSI exemption and payment of duty on brand name / trade name of others instead of filing an appeal before the honorable Supreme Court as the same is allowed now by amending notification no. 8/2003?

Situation three

Though in general it is taken as a welcome step by the central government that clearing of goods in the packing material bearing the brand name / trade name of others is eligible for SSI exemption, there is a red mark in it!

The big read mark:

-         Turnover for the purpose of SSI exemption is calculated after reducing the value of clearance of brand name / trade name of others on which duty of excise has been paid.

-         Now suppose, the clearance of goods was eligible for SSI exemption being the packing material was containing the brand name / trade name of others, but the unit paid duty of excise on the same. What would happen if SSI unit calculate its turnover after reducing the value of such clearance and department issues SCN for denying the same?

Therefore, CBEC is required to clarify this issue immediately to remove the unwarranted difficulties that would be faced by the SSI units in future.

SSI exemption allowing branded packing clearances while permitting cenvat credit prompts need for regulatory clarification. Amendments permit SSI units to clear specified packing materials bearing another's brand name, now including plastic bags, and to avail Cenvat credit on inputs for those dutiable clearances; CBEC had issued a circular citing a Supreme Court decision against simultaneous credit and exemption while a tribunal decision supported permissibility and an appeal was pending, and the amendment effectively allows concurrent benefit. A remaining compliance issue is that turnover for SSI threshold is calculated after excluding values of dutiable branded clearances, creating potential disputes if departments challenge such deductions, prompting a call for CBEC clarification.