JANUARY 23, 2015

By V R Inamdar

1. ABOLISH Cesses :

The levy of 2% Education Cess and 1% Secondary & Higher Education Cess should be abolished and merged into basic duties. These levies are causing complications in documentation, credit availment and accounting. To overcome such hardships, it is suggested that the rates of the main duty be rationalized to the extent of above cesses and levy of these cesses separately be abolished.

2. Rate of Interest for delayed Payment of Excise Duty and Service Tax:

Rate of interest on delayed payment of excise duty has been revised with effect from 1st April 2011 to 18% per annum. The rate of interest for delayed payment of taxes is exorbitantly high as compared to the rate of interest for prime lending prevailing in the Nationalised Banks. Such a high rate of interest is more penal in nature rather than being compensatory. The rate of interest on delayed payment of taxes should be prescribed at 12% per annum for delayed payment of excise duty as well as service tax.

Similarly, the prevailing interest rate in case of diversion of goods from a export warehouse to home consumption is 24% which is too high and it is suggested that the interest rate prescribed under Section 11AA of CEA, 1944 should be made applicable to this type of clearances also.

Note : Rate of interest on late payment of advance tax under Income Tax is 1% PM i.e., 12% P.A.

3. Facility of filing a revised Central Excise Return similar to Service Tax.

As per Rule 12 of Central Excise Rules, 2002, every assessee shall submit to the jurisdictional Superintendent of Central Excise a monthly, quarterly etc. return in the form prescribed for, by Notification.

Presently there is no provision in the law providing for filing a revised return in case of any incorrect information filed along with original return, which was detected subsequent to the filing of the original return. Presently, the assessee have no option but to submit the corrected return manually to the jurisdictional Range Superintendent. Often such corrected returns are not updated in the system.

It is suggested that provision for filing of revised return should be introduced in the central excise law in line with Service tax return. This will provide an opportunity to an assessee to rectify any errors or omissions.

4. Maintenance of Computerized Records should be made acceptable in case of Central Excise.

Chapter  6, para 2. Private records of  the CBEC Manual of Central Excise provides that any person may electronically maintain or generate all or any of the records, returns, invoices and other documents prescribed under the Central Excise Act, 1944, using a computer, in electronically readable format. No intimation is required to be given to the jurisdictional central excise officer. However, Para 2 (v) of the said Instructions provide that print outs of records and documents must be taken out at the end of the month and kept in bound folders, separately for each type of records, return, documents. Further, with respect to maintaining 'Daily Stock Account', Rule 10(2) of the Central Excise Rules, 2002 provides that first and last page of each account book shall be duly authenticated by the producer or the manufacturer or his authorized agent.

In the era of computerisation and developed technology, maintenance of hard copy of records should not be made mandatory.  Many industries have implemented the best available ERP Software like SAP. Such ERP can have suitable safeguards to maintain data security and sanctity. It is suggested that similar to service tax, maintenance of records including computerized records should be made acceptable as part of Central Excise Rules, 2002. Besides, self-authentication of records is possible only if records are kept in book form. However, in view of safeguards provided in ERP, requirement of self-authentication appears to be redundant &should be done away with.

5. Rationalisation of CENVAT Credit Scheme:

The implementation of the concept of Negative List of Services has resulted in all activities undertaken by a person for another for a consideration being brought under the tax net. However, the restrictions on availability of input tax credit still continue. This anomaly has led to an inequitable situation whereby the taxation of services is universal while the credit for the tax paid on input services continues to be restricted.In order to correct this inequity the definition of input service should be amended to allow input tax credit without any restrictions.

The basic object of the MODVAT / CENVAT Credit scheme was to remove cascading effect, therefore, to meets its objectives it is important that categorizations like 'input', 'input service' and 'capital goods' be done away with and all taxes incurred in relation to business activity should be allowed as credit.

6. Availment of full CENVAT Credit on Capital Goods in the year of receipt itself:

In terms of Rule 4(2) of the CENVAT Credit Rules, 2004 the credit of CENVAT in respect of capital goods has to be distributed over two years. In the year in which the capital goods are received in the factory, credit equivalent to 50% of CENVAT can be availed. The balance 50% can be availed only during the next financial year subject to conditions. As a result, a lot of time and effort is required in tracking each item of capital goods, amount of credit available in each year, etc. This also leads to errors& consequently avoidable litigation with the department.It is suggested that the CENVAT Credit Rules, 2004 be amended suitably to enable credit of full CENVAT in respect of capital goods in the year of receipt in to the factory.

7. Reversal of CENVAT Credit on written –off inputs / capital goods - Rule 3(5B) of CCR, 2004:

It's a general practice prevailing in the industry that a general entry is being passed periodically in the books of accounts making provision for write off of obsolete inputs and capital goods without identifying individual items.Itis extremely difficult to co-relate such inventory provisions with corresponding Bills of Entry or excise invoice documents based on which CENVAT credit was availed at the time of their purchase. Moreover, provisions in the books of accounts are only the entries without physical removal of such inputs / capital goods.It is accordingly requested that the amendment to Rule 3(5B) of CENVAT credit rules effected from 1st March 2013should be withdrawn. Only in case of physical removal from factory or scrapping of such inventory, CENVAT credit availed at the time of their purchases should be reversed.

8. Distribution of Credit by Input Service Distributor (ISD) to specific units only:

Rule 7 of the Cenvat Credit Rules provides for the manner for distributing the Cenvat Credit of the tax paid on the input services. Rule 7 was amended from July 1, 2012 to provide that credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period. Explanation 3(a) to Rule 7 provided that the relevant period shall be the month previous to the month during which the Cenvat Credit is distributed.

By the above amendment, the credit distribution mechanism by an ISD as the taxpayer was made complicated. The manufacturer / service provider is required to undertake a detailed scrutiny to identify the units having nexus with each & every service.

The Rule 7 being procedural provision only, it cannot restrict the availability of credit to a taxpayer particularly when the credit only relates to taxable units.It is suggested that the above amendment should be withdrawn retrospectively and option of passing on the entire eligible input service tax credit to any one unit needs to be restored.

9. Credit of Service Tax on services used for manufacture of goods through Job Workers:

As per the provisions of CENVAT Credit Rules, 2004, CENVAT credit on inputs and capital goods may be availed by a manufacturer on receipt of inputs and capital goods in the factory of manufacture. Credit of service tax may be availed by anassessee on payment of the same to any input service provider and such input service is used in or in relation to manufacture and clearance of goods upto the place of removal of goods. In the case of principal manufacturers who employ job-workers exclusively for manufacture of goods, the benefit of CENVAT credit on inputs is available since the job-worker can claim the CENVAT credit and offset his central excise liabilities against the said credit. However, as far as service tax is concerned, since the payments for taxable input services are generally paid by the Principal Manufacturer instead of the job-worker, the benefit of service tax credit is not available. This is due to the fact that the principal manufacturers cannot avail the credit since he is not the manufacturer and the manufacturer, i.e., the job worker,cannot avail the credit since he does not pay for the taxable input service.

The CENVAT Credit Rules also provide for an Input Service Distributor (ISD) mechanism whereby the credit of service tax can be distributed by an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under Rule 4A of the Service Tax Rules, 1994 towards purchase of input services. Hence, in terms of the said definition, the ISD cannot distribute credit of service tax to job-workers in case the input services are paid for by the principal manufacturer. Accordingly, the provisions of the CENVAT Credit Rules, 2004 create an inequitable situation, particularly when the benefit of CENVAT credit pertaining to inputs and capital goods is available to the assessee irrespective of whether manufacture isin-house or at job worker premises whereas the benefit of service tax credit is available only if the manufacture is at the assessee's own unit.

10. Reversal under Rule 6 (3) of Cenvat Credit Rules:

Rule 6(3) of the Cenvat Credit Rules, prescribes the methods for reversal of credit in case the manufacturer or the service provider are engaged in taxable as well as exempted activities. Rule 6(3)(iii) provides that:

- For inputs – the assessee is allowed to maintain separate books of accounts for inputs used by the assessee and accordingly full Cenvat credit on inputs used for taxable activities shall be allowed and credit on inputs used for exempted activity would not be allowed.

- For input services – eligible credit is to be determined on proportionate basis on all services (including services used entirely for taxable services). The assessee is required to reverse proportionate credit even on the services which are being exclusively used for provision of taxable activity. The above option creates undue hardship on the assessee by asking him to reverse proportionate Cenvat credit on input services which are being used exclusively for taxable activities.

It is requested that suitable amendment should be made in Rule 6(3)(iii), whereby -

Full Cenvat credit should be allowed on input service used exclusively for taxable activity and proportionate credit should be allowed only in respect of common input services used for taxable as well as exempted services.Also the procedure prescribing prior intimation for availing rule 6(3) should be done away with.

11. Remove time limit for availing cenvat credit.

Time limit of six months prescribed for availment of Cenvat Credit creates lot of hardship to the industry and hence limitation prescribed should be removed and pre-amendment provision of cenvat credit rules should be restored.

12. Cenvat Credit on Endorsed bill of entry should allowed.

Manufacturers having multi location units are facing difficulties while importing various inputs / capital goods required for the manufacture of final product. Due to Business / Marketing requirements, production plans are getting changed from Factory locations. Since facility of endorsed Bill of Entry is withdrawn, material cannot be diverted directly from the port to the respective Factory location. Material imported has to be brought into the first factory location & then it is to be diverted to another location on valid excise Documents. This is causing undue hardship to the manufacturers having multi location units.

To overcome these practical difficulties, Endorsement on Bill of Entry by the Customs Authorities may please be restored.

13. Penalty under Rule 15 of Cenvat Credit Rules, 2004

The Central Government by a Notification No. 18/2012 CE (NT) dated 17.03.2012, amended Rule 14 to the effect that cenvat credit is recoverable along with interest if credit is taken and utilised wrongly. As per the amended Rule 14, no interest can be recovered for merely taking credit in the books.

It is suggested that, similar amendment is required in Rule 15 of Cenvat Credit Rules, 2004that penalty under the said rule can be imposed only if credit is taken and utilised and not for merely taking credit in the books.

14. Changes required in Payment of Service Tax – consolidated payment instead of Service wise.

Presently tax payer is required to discharge his liability of service tax, category of service wise separately which is cumbersome and increasing the paper work of the taxpayer particularly where the service provider is providing multiple services or is the recipient of service paying service on multiple services under reverse charge mechanism. Service wise details of tax liability is required to provide in the statutory ST-3 return.

It is, therefore,suggested to amend the provisions of service taxsuitably for making service tax on consolidated basis instead of service wise.

(The writer is Sr. Manager – Taxation, CEAT Ltd, Mumbai)