DECEMBER 09, 2014

By Abhijit Saha, Director-Indirect Tax, BDO India

CENVAT credit can be taken within six months from the date of tax invoice specified under Rule 9(1) of the CCR, 2004. This has been done by insertion of third proviso to Rule 4 (1) and sixth proviso in Rule 4 (7) of the CCR effective from 1st September, 2014. Both these new Provisos are identically worded and read as under:

"Provided also that the manufacturer or the provider of output service shall not take CENVAT Credit after six months of the date of issue of any of the documents specified in sub-rule (1) of Rule 9."

This means that before 1st of September, 2014, there was no time limit for taking the CENVAT credit. Hence it may be stated that by virtue of the amendment of law, a restriction on vested indefeasible right of the assessee has been introduced.

It is a settled position of law that any restriction or denial of any benefit by the tax law is introduced in public interest. It is an intrinsic truth underlying any restriction imposed on the tax payer that the same is imposed for the welfare of the State and is for public interest. The legislature is not supposed to explain the public interest which warrants such restriction. However, the welfare of the State and public interest is the foundation for imposition of such restriction.

Incidentally it may be mentioned that way back in 1995 vide Notification No. 28/95-CE (NT) dated 29 th June, 1995 a time limit of 6 months for taking MODVAT Credit on 'Inputs' had been introduced by the Central Government by insertion of a proviso in Rule 57G of the erstwhile Central Excise Rules, 1944 ('CER'). The said limitation of six months for taking credit was removed from 1st April, 2000. Since then, such restriction was never imposed in MODVAT Rules or CENVAT Rules. The said restriction is re-introduced in 2014 after a lapse of 14 years.

In view of the above, a question may be relevant as to whether it is really for public interest? If so, then why it was not introduced before 1995 and again when it was introduced why it was taken off in 2000? When it is withdrawn in 2000 then what is the rationale in re-introducing the same after 14 years? This will raise a question as to whether such imposition of restriction on vested right of the assessee is unreasonable and arbitrary?

In this respect it may be pertinent to mention that Hon'ble Gujarat High Court in the case of Indsur Global Ltd. - 2014-TIOL-2115-HC-AHM-CX has held that Rule 8(3A) of the Central Excise Rules, 2002 which was introduced from 1st June, 2006 is unreasonable and arbitrary. The Hon'ble High Court held that t he phrase "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by clause (6) of Article 19, it must be held to be wanting in that quality. [Chintamanrao AIR 1951 SC 118 ]. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extent it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing CENVAT credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule(3A) of rule must fail.The condition contained in sub-rule (3A) of rule 8 for payment of duty without utilizing the CENVAT credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the CENVAT credit" of sub-rule (3A) of rule 8 of the Central Excise Rules, 2002, shall be rendered invalid.

In view of the above judicial pronouncement it is very important to have a re-look to evaluate whether the re-imposition of restriction of six months' time limit to take CENVAT credit is a reasonable restriction or unreasonable and arbitrary restriction?