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B.19 – Chennai Zone – Cenvat Credit – Reversal of Credit on Common Input Services:
In terms of Rule 6(3) of Cenvat Credit Rules, 2004 [CCR], a manufacturer of goods or the provider of output service, opting not to maintain separate accounts for the receipt and use of input services used in the manufacture of dutiable final goods and exempted goods, or for providing output and exempted services, shall pay an amount equal to 6% of the value of exempted goods or 7% of the value of exempted goods and exempted services or pay an amount as determined under Sub-rule 3A of Rule 6 of CCR 2004. The above sub rule prescribes a formula for arriving at the amount attributable to input services used for manufacture of exempted goods or providing exempted service. Doubts have been raised by the field formations about the expression “Total cenvat credit taken” used in the formula prescribed in the rule.
- A manufacturer of goods or provider of output services may use various input services in or in relation to the manufacture of dutiable and exempted final products and for the provision of output and exempted services. Certain input services may be used exclusively for the manufacture of dutiable goods or provision of taxable service viz. “A”. Certain other input services may be used exclusively for exempted category viz. “B” and the third category of input services may be used for exempted as well as dutiable / taxable category viz. “C”. In terms of Rule 6(1) and (2) of CCR, 2004, Cenvat credit shall not be allowed on such quantity of inputs or input services used for the manufacture of exempted goods or provision of exempted service’s. It is clear from the above that Cenvat credit can be taken on input services covered under category “A” and Cenvat credit cannot be taken on input services used in category “B”. Therefore, for arriving at the quantum of credit liable to be reversed, common input services referred in category “C” alone should be taken into account while applying the formula prescribed. However, it may be seen that the expression “P” in the formula specifically reads as ‘total cenvat credit taken on input services during the financial year’. Hence, the same is interpreted by some field officers as total of – Cenvat credit on the input services used exclusively in manufacture of dutiable goods and for provision of output services [+] Cenvat credit taken in respect of inputs used exclusively in exempted category [+] Cenvat credit taken on common input services used in both dutiable and exempted categories”.
- In this context, reference is invited to the observations oftheHon’ble CESTAT, Mumbai while passing stay order in the case of Thyssenkrupp Industries Pvt Ltd Vs CCE, Pune reported as [ 2014 (310) E.L.T. 317 (Tri.-Mumbai)], which is reproduced hereunder for
“It is well settled position in law that while interpreting statutes, no word can be added or removed / deleted from the statute. As held by Rowlatt J., “in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”. If, we apply this principle to the formula prescribed in sub-rule (3A), there is no scope for interpreting the term “P” otherwise. If the formula leads to an anomalous situation, the remedy lies in amending the provisions of statute and judiciary is helpless. In this regard, the decision of the Hon’ble Apex Court in the case of ShakarRaju – 2011 (271) E.L.T. 492 (S.C.) REFERS. In the present case, it is a fact that the total CENVAT credit taken on common input services is only Rs.2.07 Crore (approximately) whereas, if we apply the formula, the amount of credit required to be reversed works out to Rs.8.62 Crore”
- It may be seen that the Hon’ble CESTAT has noticed in the aforesaid order, an anomalous situation, where an assessee would be required to reverse more than the amount of Cenvat credit taken on common input services, if “P” is to mean total Cenvat credit taken on all the input services by the assessee instead of Cenvat credit taken on ‘common input services’. These are prima facie observations made by the Tribunal in the stay order and the final order is yet to be passed. It was suggested that the intention of the Government is to consider ‘credit taken on common input services’ only, as this amount is only sought to be divided into the two categories viz. used for dutiable and exempted categories. Clarification was sought by the zone to avoid disputes on the issue and the divergent practices followed.
Discussion & Decision
The conference noted that the language of the rule is very clear. Further, the rule has been framed keeping the concept of averages in mind. The input and input services have been presumed to be going uniformly in the manufacture of the dutiable and exempted goods. This may lead to situations where some industry may be required to reverse lesser credit than actual usage in exempted goods whereas some other industries may be required to reverse credit more than the actual usage in the exempted goods. As this alternative comes in operation when separate accounts are not maintained, the formula can only be based on ratios of values which is how the formula in the rule is. Conference also noted that the rule is quite clear in terms of language used and has stabilized after a long period of time. Therefore, it was concluded that there was no need to amend or clarify Rule 6 as it exists and should be implemented in terms of clear provisions of the rule as it exists.
B.20 – Chennai Zone – Cenvat Credit – Rule 9(1)(a) of Cenvat Credit Rules, 2004:
The said Rule provides for taking credit on the basis of an invoice issued by a manufacturer for clearance of inputs or capital goods as such. Apart from a manufacturer, service providers can also clear inputs and capital goods as such. However, there is no corresponding provision similar to Rule 9(1)(a)(i)(II) of CCR, 2004 for taking credit on the basis of invoice issued by the service provider for removal of inputs or capital goods as such. Even though Rule 3(6) of CCR, 2004 allows an assessee to take credit of duty paid by the manufacturer/ provider of output service in respect of removal of inputs or capital goods as such or used capital goods, invoices issued by an output service provider for removal of inputs or capital goods as such are not included in Rule 9 of CCR, 2004 which specifies various documents for taking credit. It was suggested that an amendment to Rule 9 of CCR, 2004 may be considered to include the invoices issued by a provider of output service for clearances of “inputs or capital goods as such” as an eligible document for taking credit .
Discussion & Decision
The suggestion made by the sponsoring zone was found acceptable by the conference and it was recommended to the Board that necessary amendments in the Cenvat Credit Rules, 2004 be made by inserting service provider in Rule 9(1)(a)(i)(II). Conference also noted that even without the amendment in the rules, CENVAT credit is available on the basis of an invoice issued by a service provider removing inputs and capital goods as such in view of provisions of rule 3(5) and 3(6) of CCR, 2004. Conference was of the view that various provisions of the rules need to be read harmoniously to make the rule operational for the purpose for which it is intended.
B.21 – Hyderabad, Coimbatore, Vadodara, Vishakhapatnam, Delhi Zone-Cenvat Credit – Balance of Education Cess and Secondary & Higher Education Cess lying in the CENVAT
Exemption from levy of Education Cess and Secondary & Higher Education Cess has been provided w.e.f. 01.03.2015 vide notification no. 14/2015-CE & 15/2015-CE both dated 01.03.2015, Sub-rule 7(b) of Rule 3 of CENVAT Credit Rules, 2004, specifies that CENVATcredit of specified duties shall be utilized for payment of those specified duties only. CENVAT Credit of Education Cess and Secondary & Higher Education Cess can be utilized only for payment of Education Cess and Secondary & Higher Education Cess, respectively. Consequent upon grant of exemption there is issue of utilization of the accumulated credit of the past. It is suggested that an amendment to sub-rule 7(b) of Rule 3 of CENVAT Credit Rules, 2004 may be made to allow the utilization of balance CENVAT Credit of Education Cess and Secondary & Higher Education Cess towards payment of either duty of excise or Service Tax.
Discussion & Decision
The conference after discussion and briefing from the officers from the Board noted that it was Government’s conscious policy decision to withdraw the Education Cess and Secondary & Higher Education Cess. It is a policy decision to not allow utilization of accumulated credit of education cess and secondary and higher education cess after these Cesses have been phased out. As these Cesses have been phased out and no new liability to pay such Cess arises, no vested right can be said to exist in relation to the accumulated credit of the past. The rule and notifications as they exist need to be followed and do not need any amendment.
B.22 – Coimbatore Zone – Cenvat Credit – Refund of Cenvat Credit under Rule 5 of CCR, 2004, in respect of raw material used in respect of goods supplied duty free against ICB to mega power/ultra mega power projects:
It would be desirable to provide completely duty free procurement of raw materials (zero rating) for use in the manufacture of goods to be supplied against ICB to mega power/ultra mega power projects. While the main units/sub-contractors are entitled to exemption under notification no. 12/2012-CE dated 17.03.2012, the vendors who supply materials to such main units/sub-contractors do not get any exemption from payment duty. This leads to accumulation of credit with main units/sub-contractors. Cenvat credit so accumulated should be allowed refund under Rule 5 of the Cenvat Credit Rules, 2004.
Discussion & Decision
The provisions of refund of accumulated credit under rule 5 of the Cenvat Credit Rules, 2004 are only meant for physical exports and not for deemed exports with one exception i.e. supplies to SEZs which is treated as exports. The meaning of the expression export goods has been inserted in the rule 5 of CCR, 2004 by notification no. 6/2015-C.E(N.T) dated 1.3.2015 to say that export goods means any goods which are to be taken out of India to a place outside India. Thus, supplies to EOU and supplies under ICB can not avail the benefit of refund of accumulated credit under rule 5. Under the present policy, it would not be possible to allow refund of accumulated credit on supplies to ICB.
B.23 – Coimbatore Zone – Cenvat Credit – Applicability of Section 11D of Central Excise Act, 1944 and amendment thereof where the amount of 6% is charged from the buyer but not deposited with the department.
Board circular no. 870/8/2008-CX dated 16.05.2008 clarifies that the amount paid under Rule 6(3) of the Cenvat Credit Rules, 2004 can be recovered by the manufacturer from the buyers. If the assessee is allowed to recover the amount from the buyers, then the very purpose of payment of 6% under, the Cenvat Credit Rules, 2004, is defeated. Since the final product is exempted, it is logical to consider that the assessee availed the credit of input taxes embedded in inputs and is recovering the same from the buyer, when he charges this amount separately on the invoice. It is thus akin to recovery of duty. The present Section 11D of Central Excise Act, 1944, does not provide for recovery of such amounts, so it is felt that the assessees who recover such amounts are unjustly enriching themselves. It is suggested that suitable amendments may be made to Section 11 D of Central Excise Act, 1944 so that such amounts can be recovered.
Discussion & Decision
The conference after discussion concluded that neither the assessee can be prevented from charging the amount of 6%/7% in lieu of amount paid under Rule 6 of the Cenvat Credit Rules, 2004, nor can the said amount could be made part of value, as it was being separately mentioned in the invoice over and above the cost of the goods/services. Further, no credit of this amount is available to the buyer of the goods. The transaction is essentially a commercial one between the buyer and seller and no amount is recovered by seller representing or showing it as Central Excise duty. Therefore, department cannot be said to be aggrieved by the transaction. No amendment in section 11D of the Central Excise Act, 1944, to recover such amount is warranted, even if this additional amount is charged from the customer and not deposited with the department.
B.24 – Hyderabad Zone – CENVAT Credit – Whether the benefit of Rule 5 of Cenvat Credit
Rules, 2004, can be extended to clearances made to 100% EOUs (deemed exports):-
Rule 5 of the Cenvat Credit Rules, 2004, allows refund of accumulated Cenvat credit on export of goods and services in terms of the formula, procedure, conditions etc. specified therein.
- The term “export service” has been defined under the provisions of the said rule to
mean a service which is provided as per Rule 6A of the Service Tax Rules, 1994, whereas, there was no explanation under central excise as to what are “export goods” till 01.03.2015. In the absence of such definition of Export Goods till 01.03.2015, the contentious issue that arose was whether refund under the provisions of Rule 5 the Cenvat Credit Rules, 2004, can be sanctioned in respect of clearances made to EOUs (which are termed as ‘deemed exports’ under Para 8.1 of the Foreign Trade Policy) or the same is to be restricted only for the physical exports made without payment of duty under ‘bond or letter of undertaking’. It is pertinent to mention that conceptually SEZs and EOUs merits to be equated and supplies to EOUs may also have to be treated as Exports (Deemed exports as per FTP), but for the recent incorporations of the definition of “Export Goods”. The terms exports, prior to incorporation of the definition, was interpreted in several judicial pronouncements to include deemed exports. In a similar situation in respect of SEZs, Board vide Circular 1001/8/2015-CX.8 dated 28.04.2015 has clarified that all supplies to SEZ should be treated as exports. However, the said circular did not cover the supplies to EOU. Clarification is needed regarding benefit under Rule 5 of the Cenvat Credit Rules, 2004 for supplies to EOUs.
Discussion & Decision
The issue is identical to the issue of extending benefit of refund under rule 5 of the Cenvat Credit Rules, 2004, for supplies made under International Competitive Bidding discussed in the foregoing paragraphs. The conference noted that the benefit of refund of accumulated credit under rule 5 of CCR, 2004 is not admissible for supplies to EOUs. Even prior to the amendment to the Rule, EOUs were not eligible for such benefit though it was extended in some of the cases by Hon’ble courts. The definition of export goods has now been incorporated in the rules removing confusion and ambiguity. With reference to SEZ, it was noted that SEZ Act, 2005, has an overriding application over other Acts including the Customs Act and therefore benefit of refund of accumulated credit is available for supplies of goods to SEZ. The present policy is to not allow the benefit of refund of accumulated credit for supplies to EOU.
B.25 – Hyderabad Zone – CENVAT Credit – Insertion of a rider under Rule 5 of the CENVAT Credit Rules 2004 restricting the Credit to be refunded to actual usage:
Rule 5 of the CENVAT Credit Rules, 2004, w.e.f 01.04.2012, (replaced vide Notification No. 18/2012-CE (NT), dated 17.03.2012) provides that a manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of Cenvat credit as determined by the specified formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board.
The specified formula may give undue/unintended benefit by allowing refund of the entire CENVAT credit in proportion to the export turnover, irrespective of its actual usage in manufacture of exported goods. It is felt that CENVAT credit eligible as cash refund should pertain to the input / input services which were actually used in the manufacture of goods or provision of output services, which are exported. Hence, it may be recommended by the conference to the Board to insert a rider under the provisions of Rule 5 of Cenvat Credit Rules, 2004 so that refund of unutilized credit is restricted to the extent which is relatable to the exported goods/services to prevent premature cash refund of tax on inputs/input services where such inputs/input services are at a much later stage.
Discussion & Decision –
The conference discussed the issue and it emerged that there was no empirical data with respect to the number of instances and quantum of credit encashed in advance as anticipated in the point sponsored. Further, no prudent business establishment would invest in excess inventory, simply to claim refund of credit, before the same actually gets used in manufacture of export goods. Further, the present scheme is administratively simple to implement and was introduced in the year 2012 as a measure of simplification. Therefore, it was decided that no change was needed at present when the department was focusing on “ease of doing business” by simplification of business processes.
B.26 – Meerut Zone – CENVAT Credit – Reversal of Cenvat Credit in respect of Service tax
paid on Input Services:
Rule 3(5) of the Cenvat Credit Rules, 2004 provides as under:
“when inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9”
An audit objection has been raised that Cenvat credit taken in respect of service tax paid on input services like Customs Brokers charges, Clearing and Forwarding Agencies Services(C&F), GTA etc used for procurement/transportation of inputs/capital goods, should also be reversed at the time of clearance of inputs/capital goods as such from the factory of the manufacturer. The present Rule 3(5) of the Cenvat Credit Rules, 2004 does not mention ‘Input Services’ amongst the credits required to be reversed and therefore it is not possible to demand reversal of credit of input services. There is need to amend the rules so that reversal of credit taken on input services can also be achieved.
Discussion & Decision
The conference noted that Rule 3(5) of the CENVAT Credit Rules, 2004 does not provide for reversal in respect of input services for a reason. Input services are consumed once the inputs and capital goods are received in the factory. Thus on receipt of inputs and capital goods, the associated input services have to be considered as consumed within the factory and become a cost to the business. Demand for reversal of the input services credit, when such input services cannot be reused, unlike inputs and capital goods which are available for reuse would not be fair to the trade. Therefore, the conference concluded that the present rule represents the correct provision in accordance with the principles of input tax credit. Rule 3(5) of the Cenvat Credit Rules, 2004, does not need any amendment. Audit para may be replied accordingly.
B.27 – Meerut Zone – Cenvat Credit – Interest on Reversal of Cenvat Credit Taken on Inputs Sent for Job Work and not Received Within Stipulated Period.
Rule 4(5)(a)(i) and Rule 4(5)(a)(ii) of the CENVAT Credit Rules, 2004 provides that CENVAT credit on inputs shall be allowed even if inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, reconditioning or for the manufacture of intermediate goods necessary for the manufacture of final products. Such inputs and capital goods are required to be received back in the factory within one hundred and eighty days of their being sent to a job worker. If the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service is required to pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise. Rule 4(5)(a)(iii) of the CENVAT Credit Rules, 2004 provides for reversal of Cenvat credit when the inputs and capital goods are not received within the stipulated time. It is however silent on the question whether interest should also be charged at the time of reversals of Cenvat Credit taken on the inputs or capital goods sent for job work and not received within the stipulated period of 180 days and if yes, what should be the period for which interest should be charged, i.e. period starting from the date of clearance from the factory or for the period starting after 180 days of clearance of such inputs and capital goods.
Discussion & Decision
The conference noted that when the rule provides for a time-frame within which the goods cleared for job-work are required to be returned and the infringement of the same would invite action as provided for under the recovery provisions of the Cenvat Credit Rules 2004. The conference noted that Hon’ble Tribunal in case of General Motors India Ltd [2010 (260) ELT 81] has ruled that Section 11AB of the Central Excise Act, is the provision under which interest is to be demanded which provides that interest is liable from the first date of month succeeding the month in which the duty ought to have been paid under the Act. Applying this ratio, the tribunal concluded that interest is liable to be paid after the expiry of the period of 180 days from the date of issue of capital goods to the job worker. The same principle would apply in case of inputs sent to the job worker.
B.28 – Meerut Zone – Cenvat Credit – Availment of Credit of Duty Paid on Welding Electrodes Used for Repairing Work.
Credit of duty paid on welding electrodes used for repairing work in factory has been in dispute since 1996. Several hundreds of Show Cause Notices are pending on account of contradictory judgments. Hon’ble Allahabad High Court, in the case of Upper Ganga Sugar &Industries Ltd.in CEA No. 135/2005, has held that Welding Electrodes used in repairing and maintenance are not eligible for Cenvat Credit .Hon’ble Rajasthan High Court in the case of Hindustan Zinc Ltd. [2008 (228) ELT 517 (Raj.)] on the other hand has allowed Cenvat Credit of duty paid on Welding Electrodes used for repairing of Capital goods. In view of the contrary judgments the Board may like to issue clarification regarding admissibility of Cenvat Credit on Welding Electrodes used for repairing and maintenance, so that a uniform practice is followed all over the country.
Discussion & Decision
The conference noted that there are contrary judgments on the issue by Hon’ble Allahabad High court in the case of M/s Upper Ganges Sugar & Industries Limited and by Hon’ble Rajasthan High Court in case of M/s Hindustan Zinc Limited. Further Hon’ble Supreme Court has referred the matter to a larger bench in case of RamalaShahkariChini Mills Ltd [2010 (260) ELT 321]. As the issue is pending before the Hon’ble Supreme Court, for the present the cases may continue to be in the Call Book. Further the conference recommended that Board should examine the issue and if needed amend the rules to bring certainty to the issue of availability of credit on welding electrodes used under different situations.
B.29 – Meerut Zone – Cenvat Credit – Dutiability of Baggase, Pressmud in Sugar Factory and Zinc, Aluminium Ash/Dross in Metal Industry and Similar Waste/Refuse arising from
Baggase, press mud in sugar factory and zinc and aluminium ash/dross in non-ferrous metal industry have been held as non-excisable goods by Hon’ble Supreme Court in the following cases respectively – M/s DSCL SUGAR LTD,(2015-TIOL-240-SC) &Indian Aluminium Company Ltd., [2006 (203) ELT 3(SC)]. As such a provision similar to the one that existed in the erstwhile Modvat scheme may be provided in the Cenvat Credit Rules, 2004 to treat waste/scrap produced from inputs on which Cenvat credit has been availed as ‘deemed manufactured products’ so that appropriate duty/credit may be recovered from the assessee and litigations avoided.
Discussion & Decision
The conference noted that Hon’ble Supreme Court in the case of M/s DSCL Sugar Limited (supra) has held that Sections 2(d) and 2(f) of the Central Excise Act, 1944 have to be satisfied conjunctively for imposition of Excise duty under Section 3 of the Act. The period involved in the case was subsequent to 10th May, 2008, i.e. the date when an explanation was added to Section 2(d) of Central Excise Act, 1944. Therefore, goods which are not manufactured would not be chargeable to Central Excise duty even after amendment in Section 2(d). However, rule 6(1) of the Cenvat Credit Rules, 2004 has been amended vide notification no. 6/2015-C.E (N.T) dated 1.3.2015, providing that for the purposes of Rule 6 of the CENVAT Credit Rules, 2004, non-excisable goods shall be considered as exempted goods. Therefore, input and input services credit relatable to manufacture of such non- excisable goods would need to be reversed by the assessee in the same way it is required to be reversed for the exempted goods. Treatment of non-excisable goods and exempted goods are required to be same w.e.f. 1.3.2015 under Rule 6 of the CENVAT Credit Rules, 2004.
B.30 – Meerut Zone – Cenvat Credit – Admissibility of Cenvat Credit on Service Tax Paid on Sales Agency Commission Service:
CBEC vide its Circular No. 943/4/2011-CX dated 29.04.2011 at point No.5 has clarified that credit of service tax paid on sales commission services (Business auxiliary services) used in
relation to manufacture/sale of finished goods is admissible under Cenvat Credit Rules, 2004. However, there are conflicting judgments of Hon’ble High Courts in this regard. Hon’ble High Court of Gujarat in case of Cadila Health care [2013(030) STR 0003] has disallowed the said Cenvat credit whereas Hon’ble Tribunal in case of Birla Corporation Ltd – [2014(35) STR977] followed the judgment of Hon’ble High Court of Bombay and allowed the credit. Board may be requested by the conference to issue necessary clarification on the subject to avoid further litigation and to achieve uniformity in the practice of assessment.
Discussion & Decision
The conference discussed the issue in detail and the facts of both the cases where apparently conflicting judgments have been delivered. It was noted that the judgment of Hon’ble High Court of Gujarat was in a very specific set of circumstances where the sales commission agent seemed to be only trading in the goods i.e. buying and selling the goods without undertaking any sales promotion or advertising. In the said judgment, Hon’ble Court noted that “there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. Obviously, commission paid to the various agents would not be covered in this expression since it cannot be stated to be a service used directly or indirectly in or in relation to the manufacture of final products or clearance of final products from the place of removal”. Board Circular No. 943/4/2011-CX., dated 29.4.2011 at point no 5 on the other hand has explained the situation where the commission agent renders the service of sales promotion in following words – “¼¼. Moreover the activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale¼¼. ” . Board circular directs that input service credit would be available when there is a element of sales promotion as sales promotion is a service. Thus, the conflict between the judgment and the circular is not as large as is perceived. Both the Board circular and case laws on the subject allow credit of input services, when the activity of the sales commission agent involves an element of sales promotion.
B.31 – Vishakhapatnam Zone – Cenvat Credit – Whether Restriction of One Year Applicable When Duty Paid Goods are Being Received into Factory Beyond One Year after Repairs/Reconditioning etc:
In terms of Rule 16 of Central Excise Rules, 2002, the assessee can bring goods (his own finished goods or other goods on which duty has been paid) into his factory for being re- made, refined, re-conditioned or for any other reason and can take credit of such duty treating those goods as inputs under Cenvat Credit Rules, 2004 and utilise this credit according to the said rules. Whereas, in terms of proviso 5 of sub-rule (7) of Rule 4 of Cenvat Credit Rules, 2004, the manufacturer shall not take Cenvat credit after one year of the date of issue of any of the documents specified in sub rule(1) of Rule 9 of Cenvat Credit Rules, 2004. It may be clarified as to whether the restriction of one year of the date of issue of input invoices can be made applicable to the documents based on which duty paid goods are being received into the factory for repairs/re-conditioning under Rule 16 of Central Excise Rules, 2002.
Discussion & Decision
The conference discussed the issue and noted that board had issued Circular no. 990/14/2014-CX-8, dated 19.11.2014 explaining the intent behind the amendment made in sub-rule (7) of Rule 4 of the CENVAT Credit Rules, 2004. The circular clarified that the credit should be taken within the time-limit prescribed on the basis of eligible documents specified in rule 9 for the first time. The limitation does not apply for retaking of the credit. It was noted that the documents for credit are generally issued by a seller and used for taking credit by a buyer say a manufacturer or a provider of the output service. Rule 16 of Central Excise Rules, 2002 on the contrary does not deal with the receipt of inputs from a seller but deals with receipt for goods produced in the same factory brought back for being re-made, reconditioned etc. To make the credit eligible on such receipt, the rule creates a deeming fiction as if these goods have been received are inputs and allows credit after entering the particulars of such receipt in the records. Credit is thus taken by making appropriate entry in records and not on the basis of documents issued by a seller. Further, there is no bar of time in the rule 16 itself for receipt of the goods back in the factory. The conference was of the view that when rule 16 does not provide for any time limit, the same cannot be read into the rules indirectly through amendment in rule 4(7). Taking into consideration the intent behind the amendment, scope of Rule 9 of the CENVAT Credit Rules, 2004 and scope of rule 16 of the Central Excise Rules, 2002, it was concluded that the time-limit prescribed in 5th proviso of sub-rule (7) of rule 4 of the CENVAT Credit Rules, 2004 CCR, 2004 would not apply when goods are brought back to the factory for reprocessing, reconditioning etc under rule 16 of the Central Excise Rules, 2002.
B.32-Delhi Zone – Cenvat Credit – CAG Audit – Loss of Revenue on Clearance of Inputs As Such.
CAG audit has raised audit paras for loss of revenue on clearance of inputs as such and has suggested amendment in rules on following grounds. Inputs removed as such are not used in the manufacture of final products therefore input credit is not admissible under the
Cenvat Credit Rules 2004. However for reversal following changes in rules are suggested –
(a) In case of removal of inputs as such, at a price lower than the one at which it was
received, a manufacturer should reverse Cenvat credit taken on the inputs at the time of receipt on the factory .
(b) In case inputs removal as such at a price higher than the purchase price, the
manufacturer should reverse the credit taken initially from the Cenvat account and pay duty on the differential value from the account current.
Rule 3(5) of the CENVAT Credit Rules, 2004 provide for payment of an amount of credit availed in respect of inputs or capital goods removed as such. The position was however different prior to 1.03.2003 before issuance of notification no. 13/2003-CE (NT) dated 01.03.2003, when on removal of inputs or capital goods as such, a manufacturer was required to pay an amount equal to the duty of excise leviable on such goods at the rate applicable on the date of such removal and on the value determined under section 4 or Section 4A of the Central Excise Act 1944, as the case may be. The view of the audit is that provisions of rule 3(5) of the CENVAT Credit Rules, 2004 can be misused and are being misused. The intention of audit is to bring this to the notice of the Government for the remedial action by amendment in the rules.
Discussion & Decision
The conference concluded after discussion that the audit paras raised by CAG are not acceptable both on the grounds of merit and equity. On grounds of equity, any rule which prescribes reversal on the basis of transaction value only when the selling price is higher and not when it is lower is not likely to stand judicial scrutiny. Further, Central Excise duty is a duty on manufacture of goods. In case of clearance of inputs or capital goods as such there is no manufacture involved. The maximum reversal of credit which the department can demand is the credit which was taken on receipt of inputs/capital goods. Any demand higher than the amount of credit taken would not stand judicial scrutiny as it would amount to demanding Central Excise duty on an activity which is not manufacture. The audit objection is accordingly not acceptable and reply to the same may be given suitably.
B.33 – Nagpur Zone – Central Excise Rules & Procedures – Proper Officer to Issue Show
Cause Notice for Recovery of Duty under the Concessional Duty Rules:
(i) Manufacturers and manufacturer importers are permitted to procure excisable
goods at concessional rate of duty by following the procedure prescribed under Central Excise (Removal Of Goods At Concessional Rate Of Duty For Manufacture Of Excisable Goods) Rules, 2001 [CE Concessional Duty Rules] and Customs (Import Of Goods At Concessional Rate Of Duty For Manufacture of Excisable Goods) Rules, 1996 [Cus Concessional Duty Rules].
(ii) In many cases, the duty foregone becomes recoverable on account of violation of
the conditions of the Concessional Duty Rules viz. short receipt of goods, diversion of goods, loss of goods, use of goods for manufacturing ineligible final products etc, benefit under the
Concessional Duty Rules is to be denied. The power to recover the duty foregone has been
provided under the Concessional Duty Rules itself which reads as under:
RULE 6 Recovery of duty in certain cases— The said Assistant Commissioner or Deputy Commissioner shall ensure that the goods received are used by the manufacturer for the intended purpose and where the subject goods are not used by the manufacturer for the intended purpose, the manufacturer shall be liable to pay the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of removal from the factory of the manufacturer of the subject goods, along with interest and the provisions of section 11A and section 11AA of the Central Excise Act, 1944 (1 of 1944) shall apply mutatis mutandis for effecting such recoveries :..
Rule 8 of Cus. Concessional Duty Rules
Recovery of duty in certain cases. – The Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise shall ensure that the goods imported are used by the manufacturer for the intended purpose or are re-exported in terms of Rule 7A and in case they are not so used take action to recover the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, along with interest, at the rate fixed by notification issued under Section 28AB of the Customs Act, 1962, for the period starting from the date of importation of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty that he is liable to pay.
(iii). It appears from the aforesaid provisions that despite the apparent difference in the wordings of the provisions of Rule 6 and Rule 8, if the said goods are not used for the intended purpose, it is the DCCE/ACCE having jurisdiction over the recipient Manufacturer/Manufacturer Importer who is required to exercise the powers of recovery, rather than the DCCE/ACCE having jurisdiction over the supplier of goods or the DCC/ACC of the Port of Import, as the case may be.
(iv). However, divergent views have been expressed by the Appellate authorities in this respect in so far as the Cus. Concessional Duty Rules are concerned. In the case of Molex (I) Ltd. -2012 (275) E.L.T. 607 (Tri.- Bang.), it was held by the Tribunal that the Show cause notice issued under Rule 8 by the DCCE/ACCE having jurisdiction over the recipient manufacturer importer was without jurisdiction whereas in the cases of Samtel Colour Ltd. – 2000 (126) E.L.T. 1256 (Tribunal) and Cosmo Ferrites Ltd. – 2014 (308) E.L.T. 633 (Tri. – Del.), it has been held by the Tribunal that it is only the DCCE/ACCE, having jurisdiction over the recipient manufacturer importer, who can issue Show cause notice for recovery of differential duty under Rule 8.
Discussion & Decision
The conference noted that there are three judgments cited by the sponsoring zone on the subject. In case of Samtel Colours Ltd it was held by the tribunal that Assistant Commissioner having jurisdiction over his factory shall have jurisdiction to issue notice for recovery of differential duty under Rule 8 ibid, and not the Assistant Commissioner of Customs at the port of importation under Rule 5 ibid. Civil appeal filed by the assessee was dismissed by the Hon’ble Supreme Court leading to merger of the order of the tribunal with the order of the Supreme Court. The issue of jurisdiction to issue show cause notice is thus judicially settled. The next issue is regarding the legal provision under which the demand should be raised. In case of Molex (I) ltd Hon’ble High Court affirmed the decision of the tribunal and found that a Central Excise Officer not appointed as a Customs officer is not the competent authority to issue the show cause notice in such cases. Tribunal further held that the appropriate section for demanding differential duty in the case was section 28 of the Customs Act, 1962 and not section 11A of the Central Excise Act, 1944. In case of Cosmo Ferrites Ltd also it was held that the appropriate section to demand duty would be section 28 of the Customs Act. The conference therefore concluded that the Assistant/Deputy Commissioner of Central Excise having jurisdiction over the actual user factory, when appointed as proper officer of Customs, would be the appropriate authority to demand differential duty under section 28 of the Customs Act, 1961.
B.34 – Mumbai-II Zone – Central Excise Rules & Procedures – Amendment in the Provisions of Rule 16(1) of Central Excise Rules 2002
The provisions of Rule 16(1) of Central Excise Rules 2002 provide that “where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, reconditioning or for any other reason the assessee shall be entitled to take credit of such duty as if such goods are received as inputs under the Cenvat Credit Rules and utilize the credit according to the said rules.” Further sub-rule (2) of he said Rule 16 stipulates that, “if the process to which the said goods are subjected, does not amount to manufacture, then the assessee shall pay an amount equal to the Cenvat credit taken under sub-rule(1) “. It can be envisaged that this provision can be misused by the manufacture for bringing in his factory any duty paid goods for any reason and availing the Cenvat credit thereon.
It may be pertinent to mention that provisions of Rule 16(1) of CER 2002 the phrase i.e. ” for any other reason” has to be read in context with earlier words i.e. “re-made, refined, reconditioning”. Therefore it can be interpreted that Rule 16(1) ibid does not confer any blanket permission for availment of CENVAT credit on any goods even if the said goods are not undergoing any process which amount to manufacture. Such indiscriminate availment of CENVAT credit would be against the cardinal principles of the CENVAT scheme. For e.g. cutting and slitting of steel sheet in coil is considered as not amounting to manufacture. However, as per the present provisions of Rule 16(1) ibid, the processor can avail the
CENVAT credit (which in such cases is normally of a considerable amount running into crores) and pass on the same to their customers. Secondly, the duty paid goods can also be brought in the factory and subsequently cleared as a Trading activity under the provisions of said Rule 16(1) ibid.
In order to eliminate the possibility of misuse of the provisions of Rule 16(1) ibid for availing the CENVAT credit, it is suggested that the words for “any other reason” may be substituted by the words “for any other similar process”.
Discussion & Decision
It was agreed in the conference that the words “for any other reason” appeared to cover many bona-fide business situations. Further, there was no data to indicate that the provision was currently being misused. It was accordingly decided that no amendment in the rules were warranted .
B.35 – Chennai and Vishakhapatnam Zones – Central Excise Rules & Procedures – Exports – Grant of Rebate by Customs:
Presently the process of sanction of central excise rebate involves filing and verification of voluminous documents like ARE1s, invoices, shipping bills, bill of lading, mate’s receipt, packing list, etc. This is highly time-consuming and leads to delay. Further, rebate is sanctioned by passing an Order-in-Original and subjected to audit and review, which is again a needless procedure. Hence, as a significant measure to improve ease of doing business, the current process of rebate sanction needs to be reviewed and it would be appropriate to grant rebate by the Customs on the basis of shipping bills and credit the rebate directly to the bank account of the exporter. Procedures similar to sanction of drawback which is disbursed commodity-wise on the basis of All Industry Rate [weighted average] may be devised for excise rebate also. Hence, a committee may be constituted to review the current system and suggest commodity-wise standardization of rebate, which will vastly reduce the transaction costs and time for exporters.
Discussions & Decision
Conference after discussion concluded that there is a need to simplify export procedures and sanction of export benefits on Central Excise side. It was decided that a committee may be constituted to be headed by the Chief Commissioner of Central Excise, Chennai Zone to recommend new export procedures (including the procedure for sanctioning of export benefits such as rebate). One officer from the policy wing of the Board at the Director level was decided to be a member of the Committee and submit its report to the Board for further action by 15.1.2016.
B.36 – Hyderabad Zone – Central Excise Rules & Procedures – Rebate of Duties Paid on Raw Materials & Services Used in Manufacture of Exempted Goods:
It is to submit that the Bulk Drug Manufacturers Association (India), Hyderabad a representative body of Bulk Drug Manufacturing units based at Hyderabad have represented that some of their member units are manufacturing products which are exempted from Central Excise duty vide notification no. 12/2012 CE dated 17.03.2012 and as a consequence they are not availing CENVAT credit of central excise duty paid on input raw-materials. To claim the rebate of Central excise Duties paid on input raw materials on export of these exempted products, they were advised to avail facility under notification no. 21/2004CE (NT) dated 06.09.2004 and to export the goods in Form ARE2 specified under the said notification; to which they have been intimated that by filing ARE2 which contained a declaration as at (d) that they shall not claim any drawback on export of the consignment covered under this application, they could not claim drawback of the Customs portion of the notified rate. Further as per the drawback schedule, the rate indicated in column no. 4 i.e Drawback when Cenvat facility has not been availed and column no. 6 i.e Drawback when Cenvat facility has been availed are same which shall mean that the rate pertains to only customs component in terms of condition no. 6 of the said notification. Therefore the trade was apprehensive that clearing the goods under notification no. 21/2004 CE (NT) dated 06.09.2004 would make them ineligible to claim drawback of customs portion of duty in view of the declaration given in Form ARE2. Association has suggested that for claiming both the rebate claim of Cenvat duty paid on inputs under notification no. 21/2004 -CE (NT) dated 06.09.2004 as well as drawback of the customs component as per All Industry Drawback rate, the existing declaration (d) appended to Form ARE-2 (Annexure 23) which appears to be prohibitory for claiming of any drawback, may be modified from ” We further declare that we shall not claim any drawback on export of the consignment covered under this application” to ” We further declare that we shall not claim any drawback (Central Excise Component) on export of the consignment covered under this application” so as to enable such exporters to avail both the benefits.
Discussion & Decision:
The Conference noted that declaration (d) of ARE-2 was meant to ensure that benefit of duty rebate and drawback was not taken simultaneously for the same element of tax i.e. Customs portion or the Central Excise portion. It was decided by the conference that the issue needs to be referred to the Drawback section with appropriate inputs from central Excise wing. Further, the conference decided that the declaration (d) of ARE-2 needs to be amended.