JANUARY 30, 2015

By Rajesh Pandey

1. Suggestions relating to provisions governing the refund of CENVAT Credit on export of goods / services.

Issue : I

In Clause (C) of Rule 5 of the CENVAT Credit Rules 2004 (hereinafter referred to as the CCR), 'Export turnover of goods' is defined as under:

"(C) 'Export turnover of goods' means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;"

Plain reading of the above definition implies that the value of only those goods which are cleared by the manufacturer-exporter during the relevant period has to be considered for arriving at the 'Export turnover'. However, in many cases, after the goods are removed for export from the place of removal (like factory), i.e. cleared without payment of duty under Bond or Letter of Undertaking, the same are not exported due to bona-fide reasons within the period of six months from their clearance from the place of removal, as required under the provisions of Condition 1(ii) of the Notification No. 43/2001-CE (N.T.). The said condition 1(ii) provides for grant of extension of the said period of six months by the Assistant / Deputy Commissioner of Central Excise. Thus, there are situations in which goods cleared from their place of removal for export under Bond or Letter of Undertaking, are actually exported after a period of more than one year. As per the Clause (b) of Para 3.0 of the Notification No. 27/2012-CE (N.T.), the refund application, alongwith specified documents and enclosures, is required to be filed before the expiry of the period of one year specified in Section 11B of the Central Excise Act, 1944. Thus for the goods which get exported after a period of more than one year from the date of their clearance from the place of removal, refund of CENVAT Credit on inputs / input services gets time barred, as per the legal provisions discussed above. Further, the definition of 'Net CENVAT Credit' in Clause (B) of Rule 5(1) of the CCR reads as under:

"(B)- 'Net CENVAT Credit' means total CENVAT Credit availed on inputs and input services by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period;"

From the above definition of 'Net CENVAT Credit' it is clear that only that CENVAT Credit has to be considered for calculating the admissible refund amount which has been availed during the relevant period, i.e. availed during that particular quarter for which refund claim has been filed. In the situation of delayed completion of export due to bona-fide reasons, after clearance of the goods from the place of removal without payment of duty under Bond or Letter of Undertaking, the refund in respect of that relevant period (quarter) would have already been filed long back and would have been sanctioned / rejected also. Further, the Condition in Clause (a) of Para 2.0 of Notification No. 27/2012-CE (N.T.) dated 18.06.2012 does not permit filing of more than one refund claim for any quarter. Thus, despite having exported the goods, refund claim of the CENVAT Credit taken on the inputs / inputs services used for the manufacture of the said goods would be denied as per the legal provisions discussed above. However, as per the broad policy contained in Rule 5 of the CCR, since the goods have eventually been exported, refund of CENVAT Credit should be admissible to the manufacturer - exporter.

Solution:

The above problem can be solved by amending the definition of 'Export turnover of goods' in Rule 5(1)(C) of the CCR by deleting the condition to clearance of the goods during the relevant period, and considering only the goods exported during the relevant period. The proposed definition is as under:

"(C) - 'Export turnover of goods' means the value of final products and intermediate products exported during the relevant period, which were cleared without payment of Central Excise duty under bond or letter of undertaking;"

Issue : II

Further, the interpretation that emerges from plain reading of the definition of 'Net CENVAT Credit', as quoted above, is that the total CENVAT credit availed during the quarter is to be considered for calculating admissible refund. In other words, the quantum of CENVAT credit utilized during the relevant quarter will not be deducted from the figure of "Net CENVAT credit" as prescribed in the Formula given therein in Rule 5(1) of the CCR. The intention of Rule 5 appears to be to grant refund of unutilized CENVAT credit. However, the current definition of 'Net CENVAT Credit' results in a different interpretation and the amount of CENVAT Credit utilized in a quarter is also eligible for refund. The only restriction in this regard in Notification No. 27/2012-CE (N.T.) dated 18.06.2012 is that the amount lying in balance at the end of quarter for which refund claim is being made or at the time of filing of the refund claim, whichever is less, has to be refunded as per Condition (g) of Para 2.0 of the said Notification. Thus it is felt that the manner in which the definition of 'Net CENVAT Credit' is worded, is resulting in grant of higher refund than what appears to be intended.

Suggestion :

Thus it is suggested that it may kindly be examined whether the refund should be granted on the basis of total CENVAT credit taken on inputs/input services during the quarter or month OR on the basis of CENVAT credit which has remained unutilized during the quarter or month, after utilization of part CENVAT credit during the quarter or month. Condition (g) of Para 2.0 of Notification No. 27/2012-CE (N.T.) dated 18.06.2012 may need amendment, if the latter view is found appropriate.

2. Amendment suggested in Notification No. 12/2012-CE as amended :

In Notification No. 12/2012-CE, as amended, in place of the para in the third column relating to the SUVs at S. No. 356, in place of the following,

"Motor vehicles of engine   capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.

Explanation- For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm and above."

the following may be substituted for clarity:

"Motor vehicles of engine capacity exceeding 1500 cc and motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm and above."

3. Change suggested in the manner of charging higher rate of duty on bigger cars (SUVs) :

At present, as well as till February 2014, the SUVs like Bolero & Sumo which are in below Rs. 10 Lakhs range were being subjected to 30% duty and expensive sedan cars like Jaguars, BMWs, Mercedez Benz, Audi, costing upto Rs. 90 lakhs, were attracting 27% duty, which was anomalous. It is suggested that the higher rate of duty of 30% may be imposed on all Motor Vehicles having engine capacity exceeding 1500 cc, whether they are SUVs or Sedans.

4. Suggestions regarding Arrest Provisions as confidence building measures for protecting genuine Taxpayers

•  In Service Tax :

•  Arrest to be made mainly in those cases where Service Tax was collected from customers but not deposited with the Govt.

•  No arrest to be made without prior approval of the Chief Commissioner in cases involving -

•  interpretation of provisions of Act / Rules ;

•  the Assessee had paid in the preceding financial year total Service Tax, excluding the Service Tax paid through utilization of CENVAT credit, of an amount exceeding 50 times of the Service Tax alleged to have evaded in the present case.

•  In Central Excise & Customs :

•  Arrest to be made mainly in those cases

•  which involve falsification of records over a period of time to evade duty or take wrongful CENVAT credit ;

•  Outright smuggling cases at Customs stations ;

•  Clandestine manufacture and removal of goods by manufacturers.

•  No arrest to be made without prior approval of the Chief Commissioner in cases involving -

•  interpretation of provisions of Act / Rules ;

•  mis-classification leading to short payment of duty ;

•  the Assessee or Importer or Exporter, as the case maybe, had paid in the preceding financial year total duty, excluding the duty paid through utilization of CENVAT credit, of an amount exceeding 50 times of the duty alleged to have evaded in the present case.

(The author is Commissioner, Service Tax (Appeals), Pune & the views expressed are strictly personal.)