There has been a running dispute between excise officials and edible oil refiners as to whether the process of refining vegetable oil amounts to manufacture -- if it does, then excise duty has to be paid. If it is not manufacture, then no excise duty has to be paid.

The explanatory memorandum to the Budget says "the First Schedule of the Central Excise Tariff Act is being amended retrospectively with effect from 1st March, 1986 ... (and) the process of refining (now) amounts to manufacture". So, now expect a slew of notices to oil refiners asking for excise duty with retrospective effect.

In another case, those pertaining to Rules 57CC and 57AD of the excise rules, there is another retrospective amendment proposed, this time from August 1, 1996. This applies to units that produce both goods that are exempted from excise duty as well as those that are not.

While the excise rules did not ask manufacturers to keep separate accounts for the common inputs used in the two types of manufactured goods earlier, they are now expected to do so, but since the amendment is retrospective since 1996, the manufacturer will have to pay the duty on all production since then.

Under the law, manufacturers are allowed to decide whether they want to pay excise duty or avail of exemptions available to them for various products.

Take the case of an exporter of tyres. The tyres are exempted from excise duties because they are being exported.

But since the exporter has bought rubber on which excise duty has been paid, he may choose to pay excise duty on the tyres as well. If he does not pay excise on the tyres, he cannot avail of modvat credit that has been paid on the rubber he purchased.

The Budget says "section 5A of the Central Excise Act, is being amended so ... that if any excisable good is exempted from duty ... the manufacturer of such goods will be bound to avail of the exemption".