Taxindiaonline.com
Taxindiaonline.com Taxindiaonline.com TIOL Tube Taxindiainternational.com
 
LOGIN
Forgot Password |  Register  
Wednesday , September 28, 2016 | Updated : Sep 27, 23:37 IST
GST   Income Tax    Customs    Excise    Service Tax    FEMA    DGFT    SEZ    Misc    Pitara    Budget   
About Us Contact Us
Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com
 
 
NEWS FLASH
 
CBEC issues transfer order of 4 Chief Commissioners + 16 Commissioners, including two to GST Council + Promotes two to Commissioner-rank (See 'Transfer' + 'Promotion' in 'Pitara') SAARC Summit in Islamabad - Modi decides not to attend it CBEC issues promotion order of two Additional Commissioners (See 'Promotion' in 'Pitara') NITI Aayog facilitates meeting between HP & Centre on pending issues (See 'Mixed Buzz') ITAT President tranfers Members to Agra & Cuttack (See 'ITAT' in Library) I-T - When in order to market money transfer business abroad to a foreign entity, if certain expenses are incurred by the Indian assessee, no TDS obligation arises: ITAT (See '2016-TIOL-1715-ITAT-COCHIN') Noida SEZ Development Commissioner gets addl charge of FALTA SEZ Income Tax - DRS, 2016 - CBDT asks CIT(A) to create awareness about scheme while sending notice (See 'Instruction' in Income Tax) CBEC Member Ananya Ray goes on leave; Charge goes back to Chairman (See 'Service News' in Pitara) I-T - Whether dress code prescribed for employees at work place would qualify as uniform, even if it is clear that there is nothing on record to suggest that there was any such dress code prescribed before issue of circular regarding 'compulsory wearing of uniform' - NO: HC (See 'Breaking News') Evasion of Service Tax - DGCEI case against Makemytrip.com + e-Biz.com + Ibibo.com - Supreme Court grants blanket stay on Delhi HC order granting refund and passing strictures against officials Govt to review MFN status granted to Pakistan; Congress supports it CBEC releases more GST Draft Rules & Formats - this time for Refund + Returns + ITC Mismatch + GSTR 9B; Last date for feedback is tomorrow (See 'Business Process' in 'GST') Kolkata Airport Customs seizes 2700 cartons of cigarettes + about 2000 wrist watches + about 100 laptops + 16 iPhones from 15 pax Government Speed Track - GST – CBEC Releases Draft Rules and Formats (See 'DDT' Column) CBDT to accept IDS declarations till midnight on Sept 30, 2016 I-T - Whether mere transfer of shares from stock-in-trade to investment leads to any taxing event and that makes assessee liable to pay tax on such income - NO: HC (See 'Breaking News') Treading the GST Path - X - Registration - Some practical issues (See 'ST se GST tak') Service Tax - Yoga Retrospectively Exempted (See 'DDT') ST - Limitation is essentially a question of fact - since disputed question of facts are to be examined, matter has to be agitated before Tribunal: High Court (See 'Breaking News') TDS in GST regime (See 'ST se GST tak') Central Excise - directions to file appeal to be given by the Commissioner only to the same adjudicating authority – CESTAT LB (See 'DDT') CX - Valuation - Place of removal is depot - Discounts allowed in price contracted for sale from depot would be allowable as deduction from such price: CESTAT (See 'Breaking News') Place of Supply of BOFS reversed under GST Model Law (See 'ST se GST tak') Govt seeks comments on GST Draft Rules & Formats by Wednesday (See Business Process in 'GST' for details) Justice Tarun Kumar Kaushal appointed as New Chairperson of DRAT for five years (See 'Administrative Order' in TIOLCORPLAWS.COM) Govt Panel approves 3 Greenfield Airports in AP (See 'Mixed Buzz') Rendering of Yoga Service - non-collection of service tax - Govt grants Section 11C benefits (See 'Not 42' in What's New) PM holds review meeting on Indus Water Treaty; SC declines to hear urgent PIL on water treaty Former PM Dr Manmohan turns 83; PM greets him
 
Bookmark and Share
Transfer of CENVAT by adopting excess valuation of inputs is illegal in law

DECEMBER 12, 2012

By A Netizen

IN the early nineties, after the MODVAT scheme had started its journey on the Indian soil, many manufacturers of lighting fittings (Ch. 94) were faced with a glut of MODVAT credit in their RG23A Part-II register, the reason being they took credit on Plastic granules (Ch. 39) where the rate of duty was 25% but the rate of duty on their final product was only 5%. So, every such manufacturer came out with ways and means to ‘encash' this excessive MODVAT credit lying in his accounts – the best way out was by misclassifying the final product itself under chapter 39 itself so that it is charged to a higher rate of duty! Those were the days when manufacturers avoided the SSI exemption of Rs.30 lakhs and paid full rate of duty from the first clearance by availing MODVAT. When this payment of duty on own volition was objected to by the department, both at the manufacturer's end and that of the consignee who had taken credit of such ‘deposit', help came in the form of the decision in the case of Everest Convertors decision of the Tribunal delivered in the year 1995 [ 2002-TIOL-129-CESTAT-KOL ]. Just a year prior to this decision, the SSI notification itself allowed such ‘foregoing of exemption' and after more than a decade the Government enacted sub-section (1A) to section 5A of the CEA, 1944 banning such payments when the goods were exempted absolutely – SSI notification is obviously out of its ambit.

The moot point is a manufacturer never wishes to see his MODVAT/CENVAT slush with Credits which he cannot use. Nevertheless, the Central Government has also provided the refund mechanism in certain cases but the assessee always tries out ingenious ways to convert this credit into hard cash.

One such manufacturer's story is what reached the High Court. This assessee cleared the inputs “as such” at higher prices and paid higher excise duty – of course from the accumulated CENVAT credit. The department could easily see through the game plan. But, there were different schools of opinion in the subject matter – what is wrong if an assessee is paying more duty by adopting higher valuation? was the general perception. However, others said that by this ‘route', the assessee was allowing his consignee manufacturer to avail higher CENVAT credit and was also emptying his fat CENVAT account and this is not proper – logically, whether legal or not.

Convinced that there was no section which catered to such a misfeasance and the closest that one could be used was section 11D of the CEA, 1944, the department issued a demand notice.

The assessee pleaded before the adjudicating authority that whatever has been collected from his consignee has been deposited with the government and there could not be anything more to be given.

The Commissioner did not agree, but the CESTAT did!

Holding that the provisions of Section 11D of the CEA, 1944 are not at all applicable in the present case, the order was set aside and the appeal was allowed with consequential relief. [See 2007-TIOL-1036-CESTAT-AHM ].

The department was not ready to take things lying down although fully aware that there were many decisions on the subject matter of payment of duty on own volition and which were against the Revenue. Notable amongst those were the Supreme Court decisions in Narmada Chematur Pharmaceuticals Ltd. [ 2004-TIOL-113-SC-CX-LB ] by referring to the decision of the Supreme Court in the case of Narayan Polyplast [ 2004-TIOL-110-SC-CX-LB ] but these decisions did not figure in the proceedings .

All said and done, a Tax Appeal came to be filed before the Gujarat High Court in the year 2007 by the CCE, Ahmedabad-II .

The decision on this Tax appeal came some time back and the assessee is in mourning!

The department has WON .

The following are the extracts from the Order of the High Court which will now onwards be carried as a prized possession by all the Audit/Preventive and the Range formations.

+ It is not in dispute that the respondent cleared the goods as such. Since no manufacturing activity was undertaken, question of collection of excise did not arise. While clearing the goods after 1-3-2003, the respondent had to follow the procedure laid down in the amended Rule 3(4) of Rules, 2002 and thereafter Rule 3(5) of the Rules of 2004. Such rules required that on clearance of goods on as such basis, the assessee should have paid an amount equal to the credit availed in respect of such inputs and that such removal should have been made under the cover of an invoice referred to in Rule 9. To the extent the respondent reversed the CENVAT credit in its account on clearance of goods without any manufacturing activity on the credit taken upon purchase of goods, even the Department raises no objection. It is the later portion, namely, collection of higher amount in the guise of excise duty and depositing it with the Department in form of CENVAT credit which is at issue. Firstly, Rule 3(5) of the Rules did not permit collection of higher excise duty from the purchaser or deposit thereof with the Department in form of CENVAT credit.

++ Since no manufacturing activity was undertaken by the respondent, the goods removed on as such basis were not thereafter exigible to excise duty. The respondent under the statutory provisions applicable, therefore, could not have collected any charge from the ultimate purchaser in form of excise duty. The question of adjusting CENVAT credit for depositing such amount so collected did not arise.

++ None of the clauses (a) to (e) of Rule 3(4) of the CCR, 2004 cover a situation where the amount has been collected from the purchaser under the title of excise duty which can never be categorized as such since no manufacturing activity was carried out by the respondent. Utilization of CENVAT credit for such purpose, therefore, was wholly impermissible. The decisions of the Apex Court cited before us and that of the Rajasthan High Court [ Dai Ichi Karkaria Ltd. ( 2002-TIOL-79-SC-CX ) , Eicher Motors Ltd. ( 2002-TIOL-149-SC-CX ), Shankeshwar Fabrics 2002(142)ELT42(Raj.)] at best may suggest that the payment made through CENVAT credit is as good as actual payment, however, such payment should be for the purpose for which it is authorized under the Rules.

++ From the above statutory provisions, it can be seen that whenever any duty has been collected in excess of excise duty payable or in any manner as representing duty of excise, such person has to pay the same to the Central Government forthwith. In the present case, the respondent had collected certain amount from the purchasers representing the same as excise duty. Undisputedly, such amount could not have been collected as excise duty. The same, therefore, had to be forthwith paid to the Central Government in terms of Section 11D of the Act. The same not having been done, the Department was within its right to seek recovery thereof.

++ The view of the Tribunal that in any case the respondent could have encashed the unutilized credit in the CENVAT account and that, therefore, the same did not make any difference to the Department, in our view, suffers from fallacy . Firstly, as noted, Rule 5 of the Rules, 2004 permitted refund of CENVAT credit under certain circumstances which provides that such refund shall be allowed subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification. It can, thus, be seen that grant of refund is neither automatic nor a matter of course. Nothing has been brought on record to suggest that the respondent was entitled to such refund as a matter of right. Secondly, utilization of CENVAT credit for the purpose of payment of unauthorizedly collected so called excise duty was not permissible under the Rules. The contention of the Department that by doing so, the respondent passed on CENVAT credit to the purchaser to be availed by them ultimately which credit such purchasers were not entitled to cannot be brushed aside .

The departmental appeal was thus allowed. [See 2012-TIOL-929-HC-Ahm-CX ]

Now, the Central Board of Excise & Customs would be all smiles and will be gearing up to issue a Circular communicating this decision to the field formations to initiate action in ‘similar' cases and proudly proclaiming that this decision endorses its earlier Circular 940/01/2011 – CX dated 14.01.2011.

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site. )

 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: Transfer of CENVAT by adopting excess valuation of inputs

Dept has already started issuing Notices to assessees who has taken credit for reversal alongwith interest

Posted by james pg
 
 
 
 
Download on the App Store
Get it on Google play
TIOL SEARCH
 
Visit IDS
Visit TIOLCorplaws.com
TIOL Subscriptions
 All-In-One Package
 Indirect Tax Package
 Income Tax Package
<< More Packages>>
 
   
             
Income Tax Customs Excise Service Tax FEMA DGFT SEZ Misc Pitara Budget
  • Income-Tax Rules
  • Income-Tax Act
  • Notifications
  • Circulars
  • Instructions
  • SC Cases
  • HC Cases
  • ITAT Cases
  • Advance Ruling
  • Settlement
  • Other Cases
  • Directorate of Income Tax (Systems)
  • Reports
  • Customs Rules
  • Tariff Notfn
  • CVD
  • Non Tariff Notfn
  • Circulars
  • Anti-dumping Notfn
  • Safeguard Duty Notfn
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Advance Ruling
  • Settlement
  • Drawback Cases
  • MISC Circulars
  • CCRs - 2004
  • Central Excise Rules
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Advance Ruling
  • Cesses Notfications
  • Excise Amendment
  • MISC Circulars
  • 37B Order
  • Settlement
  • Commr.(A) Order
  • Tribunal
  • GST Kitty
  • Notifications
  • Service Tax Rules
  • 37B Order
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Advance Ruling
  • FAQ
  • Finance Act, 1994
  • Commr. (A) Orders
  • Removal of Difficulty
  • VCES
  • Accounting Head
  • Miscellaneous
  • DIPP Notification
  • FDI Approved
  • Exchange Manual
  • Fema Notifications
  • SC Cases
  • HC Cases
  • RBI Notifications
  • RBI Circulars
  • Act
  • Rules
  • Regulations
  • Master Circulars
  • PMLA Notifications
  • Depository Scheme
  • Press Note
  • Notifications
  • Circulars
  • Public Notices
  • Trade Notice
  • FTDR Amendment 2010
  • Notifications
  • Instructions
  • Act 2005
  • Rules 2006
  • DGEP
  • State Acts
  • State Policy
  • MISC
  • SC Cases
  • HC Cases
  • VAT Cases
  • Miscellaneous
  • Service News
  • Promotion
  • Transfer
  • Deputation Posts
  • Cadre Review
  • Transfer Policy
  • Training Circulars
  • Recruitment Rules
  • Pay Commission
  • Service Cases
  • The Insider
  • MISC
  • Budget Speeches
  • Union Budgets
  • Economic Surveys
  • TRU - D. O. Letter
  • Finance Acts
  • Finance Bill
  • Budget Circular
  • A Taxindiaonline Website. Copyright © 2016 Taxindiaonline.com Pvt.Ltd. All rights reserved. | Powered by 4th Dimension