FEBRUARY 26, 2016

By Bimal Jain, FCA, FCS, LLB, B.Com (Hons)

TILL September 1, 2014, there was no time limit prescribed under the Cenvat Credit Rules, 2004 ("the Credit Rules") for availment of Cenvat credit on Inputs and Input Services. Various Courts have held that in the absence of a time limit prescribed under the Credit Rules, Cenvat credit can be taken at any time. Even in some cases, Assessees have been allowed to avail Cenvat credit even after year(s) as per following judgments:

- Coromandel Fertilizers Ltd. Vs. Commr. of C. Ex. (A), Visakhapatnam-IV - 2009-TIOL-153-CESTAT-BANG,

- Commissioner of C. Ex., Ahmedabad Vs. Lubi Electronics - 2009-TIOL-2509-CESTAT-AHM.

Notification No. 21/2014-CE(NT) dated July 11, 2014 ("Notification No. 21") - Prescribing time limit of 6 months effective from September 1, 2014

However, effective from September 1, 2014, the said liberty in respect of availment of Cenvat credit had been withdrawn. The Central Board of Excise and Customs ("the CBEC" or "the Board") vide Notification No. 21 (Applicable w.e.f September 1, 2014), amended Rule 4(1) [for Inputs] and Rule 4(7) [for Input services] of the Credit Rules in order to fix a time limit of 6 months from the date of issue of any of the documents specified in Rule 9(1) thereof, for availment of the Cenvat credit.

After the said insertion under Rule 4(1) and Rule 4(7) of the Credit Rules, the same became a debatable issue in the Trade, raising concerns about applicability of time frame of 6 months in various situations such as for Invoices issued prior to September 1, 2014, taking re-credit in terms of the Credit Rules, etc.

CBEC clarification regarding availment of Cenvat credit on Inputs/Input Services after 6 months

Thereafter, on November 19, 2014, the CBEC vide Circular No. 990/14/2014-CX-8 dated November 19, 2014 ("the Circular") has clarified that the purpose of the amendment made by Notification No. 21 is to ensure that after the issuance of a document under Rule 9(1) of the Credit Rules, Cenvat credit is taken for the first time within 6 months of the issue of the document. Once this condition is met, the limitation has no further application.

However, it is pertinent to note that the Circular in latter part further provides that "It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5)(a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document"

Thus, even though the CBEC has clarified non-applicability of six months' time limit while availing re-credit in terms of the Credit Rules but, there are certain other issues still existing in this regard, which were left unexplained by the Board.

Notification No. 6/2015-CE(NT) dated March 1, 2015 ("Notification No. 6"): Enhancement of time limit for availing Cenvat credit on Inputs/Input Services from 6 months to 1 year effective from March 1, 2015

Thereafter, the stated time limit for availment of Cenvat credit was extended from 6 months to 1 year in the Union Budget, 2015 vide Notification No. 6 w.e.f March 1, 2015.

Open Issues - Not clarified yet

Even though the CBEC has clarified about non-applicability of time limit while availing re-credit in terms of the Credit Rules but, there are certain other issues still existing in this regard, which require immediate attention of the Board:

(i) SSI Unit crossing Exemption limit: In terms of Rule 3(2) of the Credit Rules, a manufacturer or producer of final products is allowed to take Cenvat credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock, on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.

Issue: Where a manufacturer availing SSI exemption, crosses the exemption limit, whether transitional credit is available if the invoices under which the above category of inputs were purchased are beyond one year from the date of taking Cenvat credit?

(ii) Cenvat credit on goods received for re-conditioning, repairs, etc.: Under Rule 16 of the Central Excise Rules, 2002, where any goods on which duty had been paid at the time of removal are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the Assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat credit of the duty paid as if the goods are received as inputs under the Credit Rules and utilize the Cenvat credit according to the Credit Rules.

Issue: Whether the newly added proviso to Rule 4(1) of the Credit Rules, which talks about Inputs, would apply to Cenvat credit taken on finished goods received for being re-made, refined, re-conditioned or for any other reason as Inputs by the manufacturer in the factory beyond one year of its removal from the factory?

(iii) Where dutiability/taxability of a final product or service is under litigation: There may be situation where dutiability of a final product or taxability of any service, is in dispute/litigation on premise that the said product or service is exempted or not chargeable to duty/taxes, before the Adjudication Authority for a period of more than one year for adjudication. Later on, it is adjudicated that a particular product or service (which was under litigation) is dutiable or taxable.

Issue: Whether Cenvat credit on Inputs/Input Services beyond one year would be available for the past period of dispute?

(iv) Invoices issued prior to September 1, 2014:

Issue: Whether the time limit of six months/1 year prescribed for availing Cenvat credit would apply to the invoices issued prior to September 1, 2014, keeping in mind the judgments in the case of Osram Surya (P) Ltd. Vs. CCE, Indore - 2002-TIOL-64-SC-CX & Ashok Leyland Ltd Vs. Commissioner of Central Excise, Nagpur - 2014-TIOL-2102-CESTAT-MUM?

(v) Invoices issued prior to March 1, 2015:

Issue: Whether the Assessee would be eligible to avail Cenvat credit on Invoices issued prior to March 1, 2015 for which time period of 6 months expired but 1 year period is open on March 1, 2015.

The Board is required to clarify the matter at the earliest keeping in mind the very purpose of introduction of the Cenvat credit scheme i.e. not to collect duty on duty and avoid cascading effect, which is also the underlying aim for introduction of Goods and Services Tax ("GST") in the Country.

Further, it is expected that the Government simplifies the definition of Inputs and Input Services and remove restriction clauses mentioned therein to provide seamless flow of credit and also extend time limit from one year to two years for availing Cenvat credit on Inputs and Input Services. This step will definitely be applauded by the Trade and Industry and will pave the way towards successful implementation of GST.