TIOL-DDT 2777
02 02 2016
Tuesday

YESTERDAY, DDT wondered if the Government could amend a notification retrospectively - and today we are to report that they amended the CENVAT Credit Rules retrospectively.

Yesterday they issued a notification to amend the CENVAT Credit Rules, which reads as:

1. Short title and commencement.- (1) These rules may be called the CENVAT Credit (First Amendment) Rules, 2016.

(2) They shall come into force with effect from the 1st day of March, 2015.

2. In the CENVAT Credit Rules, 2004, in rule 3, in sub-rule (1), in clause (vii), the proviso shall be omitted;

when you say, " They shall come into force" , it obviously means a future date, but this future date is in the past that is 1st March 2015. Is this 2015 a mistake; should it have been 2016? And what is the significance of 1st March 2015? If they wanted it to come into force from 1.3.2015, shouldn't they have stated that it is deemed to have come into effect with effect from 1.3.2015?

But why this amendment at all? That's a long story. Read the next capsule in this dosage of DDT.

Notification No. 01/2016-CX (N.T), Dated: February 01, 2016

CENVAT Credit on Ships for Breaking

AS per the proviso to Rule 3(1)(vii) of the CENVAT Credit Rules,

CENVAT credit shall not be allowed in excess of 85% of the additional duty of customs paid under sub-section (1) of section 3 of the Customs Tariff Act, on ships, boats and other floating structures for breaking up falling under tariff item 8908 00 00 of the First Schedule to the Customs Tariff Act.

But why this restriction of 85% credit on ships and boats? This was brought out in 2011 Budget and the TRUJS then explained:

The process of obtaining goods and material mainly melting scrap and re-rollablescrap of steel, by breaking up of ships, boats and other floating structures is deemed to be a process of manufacture in terms of section note 9 of Section XV of the Central Excise Tariff. In the breaking of ships, a number of used serviceable articles such as pumps, air-conditioners, furniture, kitchen equipment,wooden panels etc. are also generated. These are generally sold as second hand goods by ship breaking units but no excise duty is payable as they do not emerge from a manufacturing process. At the same time, ship breaking units are allowed to avail full credit of additional duty of customs paid on the ship when it is imported for breaking. It has been reported by the field formations that this anomaly is resulting in misuse of the Cenvat credit scheme. Rule 3 of the CCR has been amended to prescribe that Cenvat credit shall not be allowed in excess of 85% of the additional duty of customs paid on ships, boats etc. imported for breaking.

Three years later, the Gujarat High Court in the case of  Shivam Engineering Company  -  2014-TIOL-1563-HC-AHM-CUS held that no Additional Duty of Customs (CVD) is leviable on vessels and other floating structures imported into India for breaking up.

So there was no CVD leviable ever on the ships imported for breaking up - 85% credit notwithstanding.

Now the Government has removed this 85% clause with effect from 1.3.2015, but why 1.3.2015?

Please also see

1. Ships for Breaking Up - Not Excisable; therefore no CVD-High Court - DDT 2436 12.09.2014

2. Excise duty on ships for breaking - do they manufacture ships just for breaking up? - DDT 541 29 01 2007

3. The largest ship-breaking yard on the planet.

4. Ships imported for breaking - CVD and Cenvat credit

The Ship Breaking Mystery - Board Clears the Mist

THE CBEC in a Circular answers the questions raised above.

Board has received references regarding the judgement of the Gujarat High Court reported in 2014-TIOL-1563-HC-AHM-CUS.

It seems after the judgement;

(i) Show Cause Notices have been issued to importers who are not paying CVD demanding CVD from them as department has appealed against the order of the High Court of Gujarat.

(ii) Show Cause Notices for wrong availment of CENVAT credit have been issued to those importers who are paying CVD voluntarily and taking CENVAT credit and utilising the same for payment of Central Excise duty liability arising due to breaking of vessels.

On these situations, Board has decided that:

1. All Show Cause Notices issued for non-payment of CVD [(i) above] shall be kept in call book till the SLP filed by the department in the Supreme Court is decided.

2. Show Cause Notice denying Cenvat Credit of CVD paid voluntarily by the importers at the time of import is not warranted. It is well settled position in law that a buyer may avail Cenvat Credit, if supplier has paid duty.Thus, once the importer has paid CVD on import of ship, Cenvat Credit of that CVD cannot be denied for payment of Central Excise duty on breaking of that ship. Show Cause Notices already issued for denying Cenvat Credit may be decided in light of these instructions and in future such Show Cause Notices may not be issued.

Significance of 1.3.2015: By Notification No. 6/2015-CENT dated 1.3.2015, an explanation was added to Rule 6(1) of the CENVAT Credit Rules - For the purpose of this rule, exempted goods or final products as defined in clause (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. By this explanation, credit is required to be reversed even for non- excisable goods produced as byproducts in the process of manufacture of excisable goods. This amendment has brought non-excisable goods and exempt goods at par and no credit is now available on either of them.

So for ship breaking, while the credit allowed is 85%, the units are required to reverse proportionate credit for products emerging like furniture, wooden panels etc., This anomaly existed from 1.3.2015, which the Board has now corrected. Now, the 85% restriction is removed retrospectively with effect from 1.3.2015.

It is immaterial here whether the Government has the power to amend a rule retrospectively. As this is a beneficial amendment, no assessee will challenge it and the Government which issued it is not expected to contest it.

CBEC Circular No. 1014/2/2016., Dated: February 01, 2016

Sagacious Circular

BOARD deserves all praise for this clear precise circular. The Circular clearly enunciates the issues and offers precise workable solutions. What comes out as a whiff of fresh air from the suffocated babudom is the emphatic expression the Board uses in conveying guidance to the field. See the authoritative affirmations like:

1. Show Cause Notice denying Cenvat Credit of CVD paid voluntarily by the importers at the time of import is not warranted.

2. It is well settled position in law that a buyer may avail Cenvat Credit, if supplier has paid duty.

3. in future such Show Cause Notices may not be issued.

4. This beneficial amendment of deleting proviso to rule 3(i)(vii) of CENVAT Credit Rules, 2004 has been done retrospectively with effect from 01.03.2015.

This is the way Board should issue Circulars. However, in an otherwise well drafted circular, there is a small discordant note. The subject of the Circular reads as - "Inclusion of show cause notice's issued in relation to levy of CVD...".

That unwanted apostrophe should have been avoided. Last time I pointed out about this kind of apostrophic abuse (DDT 2767), an AR in the Tribunal sent me a message,

"what is your fixation on apostrophe?

-

one of the AR's."

FTP - No Import of Capital Goods under EPCG for generation/transmission of power

GOVERNMENT has amended the Foreign Trade Policy to clarify that Import of Capital Goods will not be permitted under EPCG Scheme for generation/transmission of power. This is an already existing provision; the amendment only makes the position more clear.

DGFT Notification No. 35/2015-2020, Dated: January 29, 2016

FTP - Online Applications for IEC

DGFT has amended the ANF2A [Application Form for Issue / Modification in Importer Exporter Code Number (IEC)] and has notified that:

(i) Online applications for IEC will require only 2 documents to be uploaded electronically. ie. (i)PAN (ii) Cancelled cheque bearing entity's pre-printed name or Bank certificate, besides the Digital Photograph of the signatory applicant.

(ii) The manual mode of submitting applications for Importer-Exporter Code (IEC) as per the existing format will be withdrawn w.e.f. 1.4.2016.

(iii) Application for new IEC will be accepted in online mode only w.e.f. 01.04.2016

(iv) The online application for IEC /modification in IEC can be made by applicants through digital signature (Class-II or Class-III) w.e.f 01.04.2016.

(v) After receipt of applications complete in all respects, decision regarding grant or refusal of IEC will be taken and communicated by the Regional Authorities (RA) of DGFT within two working days, after processing the application on the basis of the check list.

(vi) The facility of filing online application for IEC will also be available through e-biz portal of DIPP, after its integration with DGFT's system.

DGFT Public Notice No. 58/2015-2020, Dated: February 01, 2016

Default of duty = Rs.7235; Penalty=Rs. 1,70,000

WE came across an interesting case in the Chennai CESTAT recently.

A Show Cause Notice was issued on 14.12.2000. A corrigendum was issued on 17.1.2002. 11 years after issue of Show Cause Notice, it was adjudicated on 15.4.2011. Default of payment of duty was Rs. 7235 and penalty imposed under Rule 173GG was Rs. 1,70,000. It seems there was no proposal in the show-cause notice for imposition of penalty under Rule 173GG of Central Excise Rules.

The CESTAT had no hesitation in setting aside the penalty.

See 2016-TIOL-312-CESTAT-MAD

Until Tomorrow with more DDT

Have a nice day.

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