JULY 19, 2014

By S. Ramaswamy, Head-Indirect Tax, NASH INDUSTRIES (I) PVT LTD

WE thank the Finance Minister for presenting a good budget which will not only benefit the common man but also catapult the economic growth.

However, there are some provisions which can cause impediments to growth and the author requests the Hon'ble Finance Minister to look into the same before the passage of Finance(No.2) Bill, 2014.

A. Mandatory pre-deposit instead of stay in appeal.

Though this eliminates the process of extension of stay and unnecessary hitches of the department, it does not augur well.

First, the field formations have a very scant respect for the court decisions and the Board Circulars and instructions leading to frivolous and time consuming litigation process.

Invariably, the adjudicating authority confirms the demand or rejects the refund claim based on the directions of the higher authorities and the assessee has no option other than to file the appeal. The appeal with the mandatory deposit at the appellate level is an unnecessary burden on the assessee because of the fault of the adjudicating authority. The adjudicating authority should be asked to perform their quasi-judicial functionsindependently and not be swayed by the instructions of the higher authorities.

Example:

The Gujarat High Court in the case of EI Dupont India Pvt. Ltd. = 2013-TIOL-1172-HC-AHM-CX had directed the Board to issue the instructions within 30 days. The judgment was rendered on 25th October, 2013.

In spite of the Court's direction, the Board had issued a different instruction vide their Letter in F.No 268/05/2014 CX.8 dated 27.05.2014, in para (v) as follows:

"…that the Rule 5 provisions relating to refund of unutilized Cenvat credit are applicable only to physical exports and not to deemed exports."

Thereafter, Board has issued the instructions on 26th June, 2014 vide F.No 201/01/2014-CX.6 dated 26.06.2014 where it is stated in para (2):

"However the binding precedent was not followed which led to litigation before the Hon'ble High Court to which Hon'ble High Court took a serious view. It may be noted that on the subject of consequential refund, where the department has gone in appeal, there already exists a circular no 695/11/2003–CX dated 24-02-2003. This circular of the Board is binding on all field officers. Had this circular been followed in the case, unnecessary litigation as well as adverse observation of the Hon'ble High Court could have been avoided. This circular is once again brought to the notice of field officers with direction that it is followed scrupulously."

The Board in its instruction dated 26th June, 2014 has not withdrawn the instruction issued on 27th May, 2014. The field formation irresponsibly cites the May 27th instruction instead of the latest instruction of 26th June, 2014 to deny the refund.

This is bound to increase the litigation and the cost for the tax payers and hence there is a need to dispense with the mandatory pre-deposit at the first appellate level of Commissioner (Appeals).

B. Time limit of 6 months to avail Cenvat Credit

In the matter of availment of CENVAT credit the Hon'ble Tribunals have held that in the absence of time limit in the law, one year should be considered as a reasonable period for availment of Credit.

Incidentally, the Board had vide F.No. 345/2/2000-TRU dated 29.08.2000 clarified thus –

"10. Rule 57AC provides that CENVAT credit may be taken immediately on receipt of inputs in the factory. Some apprehensions have been expressed that if the CENVAT credit is not taken "immediately", like within 24 hours or so, the field officers may deny the CENVAT credit. The idea is that if the manufacturer desires he can take the CENVAT credit at the earliest opportunity when the inputs are received in the factory. This, however, does not mean, nor is it even intended that if the manufacturer does not take credit as soon as the inputs are received in the factory, he would be denied the benefit of CENVAT credit. Such an interpretation is not tenable."

Therefore, the embargo to come into force from 01.09.2014 [notfn. 21/2014-CE(NT)] of a time limit of six months for availment of CENVAT credit should be enhanced to one year.

C. Refunds when Revenue has filed appeal before higher authorities:

The Courts repeatedly have held that refund should not be kept on hold or rejected stating that the department has filed an appeal at the higher forum. The Board has also issued Circulars 572/9/2001-CX, Dated: February 22, 2001, 695/11/2003-CX, Dated: February 24, 2003 in this regard. But still the field formations reject the claim or keep on hold the claim stating that department has filed an appeal in the higher forum.

This causes unnecessary distress to the assessees in managing their fund apart from the unnecessary litigation. Instead the department can sanction the refund and issue the preventive show cause notice which can be kept in call book till the matter is finally settled.

These measures do not augur Acche Din.

The author respectfully requests the Finance Minister to kindly relook at the following suggestions before passing of the Finance Bill, 2014:

1. No pre-deposit at the First Appellate Forum (Commissioner(A)) but a 10% pre-deposit at the Tribunal level which will eliminate the need of stay or extension of stay and safeguard the interest of Revenue.

2. The time limit for availment of credit should be increased to one year instead of six months.

3. To provide that no refund or rebate claim to be withheld or rejected on the grounds that an appeal has been filed by the Revenue, but to sanction the refund and issue the preventive show cause notice to protect the interest of Revenue.

(The views expressed are strictly personal.)