CX - A manufacturer should be permitted to utilize CENVAT Credit legally availed during first 5 days or 6 days of subsequent month for paying duty in r/o goods cleared in previous month: HC
By TIOL News Service
AHEMDABAD, AUG 11, 2017: THE petitioners have prayed for an order to declare the first proviso to Rule 3(4) of the CCR, 2004 as ultra vires of Rule 3(1) of the CCR and Section 37 of the CEA, 1944 and also ultra vires of Article 14 and 19(1)(g) of the Constitution of India.
They also pray for quashing and setting aside the impugned show-cause-cum-demand notice dated 18/09/2015.
Rule 3(4) of CCR, 2004, first proviso reads –
| Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be: |
Rule 3(1) of CCR, 2004, reads –
| RULE 3. CENVAT Credit – (1) A manufacturer or producer of final products or a [provider of output service] shall be allowed to take credit (hereinafter referred to as the CENVAT Credit) of - |
The petitioner explains that the effect of the proviso to rule 3(4) is that though a manufacturer is obliged to discharge excise duty liability by 5th or 6th day of the next month (in terms of rule 8(1) of CER, 2002) the CENVAT Credit taken by the manufacturer only till the end of the month to which the excise duty related could be utilized and CENVAT Credit legally availed during the first 5 days or 6 days of the subsequent months could not be utilized for paying duty of excise for the goods cleared in the previous month.
The petitioner submits that since they have utilized CENVAT Credit during the month in which the excise duty for the goods cleared in the previous month was paid, the department has alleged that since the petitioner could not have utilized the CENVAT Credit taken in the beginning of a particular month while discharging the duty liability for the goods cleared in the previous month, there has been a default in payment of excise duty.
Consequently, SCN dated 18/09/2015 has been issued proposing to recover an amount of Rs.83,52,354/- as short payment of central excise duty under the provisions of Section 11A of the CEA r/w Rule 8(3) of the CER. The said SCN further proposed recovery of an amount of Rs.94,89,22,059/- as excise duty in cash i.e. through PLA invoking Rule 8(3) of the CER r/w s.11A of the CEA on the ground that petitioner had wrongly utilized CENVAT Credit for payment of duty during the period of default.
As mentioned, the petitioner is challenging the validity and constitutionality of the proviso to Rule 3(4) of the CCR insofar as it restricts utilization of CENVAT Credit for discharging duty liability incurred by the manufacturer.
It is further submitted that proviso to Rule 8(3A) of the CER invoked in the SCN has been held to be unconstitutional by the Court in the case of Indsur Global Ltd. = 2014-TIOL-2115-HC-AHM-CX and, therefore, the impugned SCN also deserves to be quashed and set aside.
The Counsel for the department while requesting that the petition be dismissed in view of the submissions made also mentioned that the judgment of the High Court in the case of Indsur Global Ltd. - 2014-TIOL-2115-HC-AHM-CX has been stayed by the Supreme Court and, therefore, Rule 8(3A) of the CER, 2002would be applicable.
After considering the voluminous submissions made by both sides, the High Court inter alia observed -
++ On one hand manufacturer is allowed as per Rule 8(1) of the Central Excise Rules, 2002 to pay the duties on the goods removed from the factory during the month by the 6th day of the following month.
++ On the other hand, though the manufacturer may have CENVAT Credit in his account, the same cannot be permitted to be utilized after the end of the month, more particularly, between the last day of the month and the 6th day of the following month and, therefore, proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules would be just contrary and /or in conflict with Rule 8(1) of the Central Excise Rules, 2002. A manufacturer can be and should be permitted to utilize the CENVAT Credit legally availed during the first 5 days or 6 days of the subsequent month for paying the duty of the excise for the goods cleared in the previous month.
++ Even otherwise, proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules can be said to be ultra vires to Rule 3(1) of the CENVAT Credit Rules as it does not have any nexus with the object sought to be achieved by the Rules and in fact runs contrary to the principles of CENVAT Credit Rules.
++ At this stage, it is required to be noted that as per catena of decisions of the Hon'ble Supreme Court as well as this Court and other High Courts, CENVAT Credit is indefeasible and there is no correlation of the raw-material and the final product . It is not as if credit could be taken on a final product, which is manufactured out of a particular raw material to which the credit was related. The Credit may be taken against excise duty on the final product manufactured on the very day that it becomes available.
++ Therefore, proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules, which disentitles the manufacturer utlization of CENVAT Credit availed in a particular month for the goods manufactured in the preceding month can be said to be contrary to the law laid down by the Hon'ble Supreme Court in the aforesaid decisions Dai Ichi Karkaria Ltd - 2002-TIOL-79-SC-CX-LB and Eicher Motors Ltd - 2002-TIOL-149-SC-CX-LB as well as contrary to the CENVAT Credit Scheme, and therefore, the same is invalid and unconstitutional.
++ Once powers are conferred to frame the Rule for allowing credit the same includes imposing restrictions about utilization of the credit. Under the circumstances, on the aforesaid ground, proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules cannot be said to be beyond the powers conferred under Section 37 of the Central Excise Act.
Conclusion: Proviso to Sub Rule (4) of Rule 3 of CCR is held to be ultra vires and unconstitutional to the Scheme of CENVAT Credit.
(See 2017-TIOL-1538-HC-AHM-CX)
