JANUARY 16, 2015

By Shailesh P. Sheth, Advocate

LET us now consider the applicability of the prescribed 6 months time limit for taking credit in certain specific situations. This is discussed below:

Re-credit of credit reversed in the specified circumstances - "Board steps in and averts damage….!"

Doubts have been prevailing amongst the manufacturers and the service providers with regard to the applicability of the 6 months' time limit for taking credit in the following circumstances viz:

(a)Re-credit of CENVAT credit availed on input service which was earlier reversed due to non-payment of the value of service and service tax thereon to the service provider within three months from the date of invoice, etc.
[Ref : Third proviso to Rule 4(7) of the CCR, 2004];

(b)Re-credit of the CENVAT credit in respect of input later put to use but that was earlier reversed due to the value of input being written off or provision for the same being made in the books of accounts.
[Ref : Rule 3(5B) of the CCR, 2004];

(c)Re-credit of the CENVAT credit on receipt of the processed input from the job worker that was earlier reversed due to non-receipt of such processed inputs within 180 days. [Ref: Rule 4(5)(a) of the CCR, 2004]

Fortunately, Board took immediate note of the concerns expressed by the stakeholders and vide its Circular 990/14/2014-CX-8 dated 19.11.2014 clarified, in no uncertain terms, that the limitation of six months would apply when the credit is taken for the first time on an eligible document and that it would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in the relevant Rules. In other words, as clarified by the Board, the six months' time limit would not apply in the above three circumstances when the re-credit of amount reversed is taken by the assesssee as permitted in law.

Here, one may advantageously refer to the judgement of the Appellate Tribunal in the case of Rahee Industries Ltd. Vs. CCE, Kolkata-II - 2002 (148)ELT 927 (Tri-Kol) and affirmed by the Calcutta High Court in the case of CCE, Kolkata-II vs. Rahee Industries Ltd. - 2010-TIOL-919-HC-KOL-CX.

The ratio laid down in this judgement would squarely apply in the aforesaid three circumstances when an Assessee claims re-credit of the credit reversed earlier under the specified circumstances.

Nevertheless, Board richly deserves credit for this clarification that could not have come a day sooner!

Provisions of Rules 3(2) & 3(3) of CCR, 2004- "Let there be a smooth transition….!"

Sub-rules (2) and (3) of Rule 3 of CCR, 2004 reads as under:

"(2) Notwithstanding anything contained in sub-rule (1), the manufacturer or producer of final products shall be 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.

(3) Notwithstanding anything contained in sub-rule (1), in relation to a service which ceases to be an exempted service, the provider of the output service shall be allowed to take CENVAT credit of the duty paid on the inputs received on and after the 10th day of September, 2004 and lying in stock on the date on which any service ceases to be an exempted service and used for providing such service."

(Emphasis supplied)

A question that arises here is whether or not the time limit of 6 months for taking credit would be applicable when a manufacturer or service provider claims credit in terms of sub-rule (2) or (3) of Rule 3 of CCR, 2004.

It is viewed that this prescribed time limit would not apply when credit is claimed by a manufacturer or service provider in terms of sub-rule (2) or (3) of Rule 3 of CCR, 2004. This is for more than one reason as discussed below:

a) Sub-rules (2) and (3) of Rule 3 of CCR, 2004 are independent provisions and stand on their own respective footing.

b) The third proviso inserted in Rule 4 (1) of CCR, 2004 prescribing the time limit of 6 months for taking CENVAT Credit on inputs applies to all the assesses i.e. manufacturers or service providers who are availing CENVAT Credit facility on regular basis. On the other hand, the trigger-point for the claim for credit in terms of sub-rules (2) or (3) of Rule 3 is the happening of a specified event and that is, the goods becoming excisable or the goods or services, hitherto exempted, ceasing to be exempted. It will, therefore, be seen that whereas third proviso to Rule 4 (1) deals with the situation where there is a continuum of an event of discharge of excise duty or service tax liability on goods or services removed or provided by the assessee with simultaneous claim for credit on inputs;sub-rule (2) & (3) of Rule 3 deals with a situation involving one-time, specific event and that is, goods becoming excisable or exempted goods/services ceasing to be exempted. This 'one-time event' in the context of 'non-excisable or exempted goods' or 'exempted services' may or may not even happen. Sub-rule (2) or (3) of Rule 3, would, therefore, be operative as an independent provision in the specified circumstances, unhindered and unaffected by the third proviso to Rule 4 (1).

c) Both, sub-rules (2) & (3) of Rule 3 start with non-obstante clause i.e. "notwithstanding anything contained in sub-rule (1)…." and are thus overriding sub-rule (1).

The use of 'non-obstante clause' in sub-rules (2) & (3) may seem puzzling since, at first glance, there hardly appears to be anything in sub-rule (1) of Rule 3 from which sub-rules (2) or (3) need to make a departure with overriding effect. However, a close reading of the provisions reveals the legislative wisdom.

Sub-rule (1) of Rule 3, inter alia, allows the CENVAT Credit on inputs received in the factory of a manufacturer on or after 10th September, 2004 (i.e. the date on which CCR, 2004 came into force). Leaving to itself, this provision would have resulted in the denial of CENVAT Credit to a manufacturer in respect of duty-paid input lying in stock with him merely for the reason that the inputs were received by him prior to 10th September, 2004, notwithstanding the fact that his final product has become excisable or ceased to be exempted at any time after this date. Obviously, legislature could not have intended this, since, for the manufacturers, 'CENVAT Credit Scheme' enshrined in CCR, 2004 is merely a continuation of the erstwhile Modvat/CENVAT Credit Scheme albeit, with much wider scope. The 'non-obstante clause' employed in sub-rule (2) of Rule 3 making it overriding sub-rule (1), provides safeguard against any such mischief or eventuality. Consequently, the date of receipt of duty paid input in his factory would be totally irrelevant when a manufacturer claims credit thereon under the circumstances as specified in sub-rule (2). The purpose behind sub-rule (2) and the use of 'non-obstante clause' therein would be wholly defeated if the rigour of third proviso to Rule 4(1) is brought into play here.

In fact, the intent and design of the legislature becomes quite clear when one reads sub-rule (2) of Rule 3 in juxtaposition with sub-rule (3) of the said Rule. The latter sub-rule also starts with identically worded 'non-obstante clause'. However, even while sub-rule (3) is made 'overriding' sub-rule (1), it still restricts the transitional credit to the service providers on duty-paid inputs lying in stock on the penultimate date provided such inputs are received by him on or after 10th September, 2004 . But, then, sub-rule (1) itself has a similar inbuilt provision whereby the CENVAT credit on any input is allowed to the service providers which is received by him on or after 10th September, 2004. Since, both sub-rules (1) and (3) of Rule 3 allows CENVAT Credit on inputs to the service providers in normal course or as a transitional credit, as the case may be, provided the inputs are received by him on or after 10th September, 2004, one would wonder as to why should there be non-obstante clause' in sub-rule (3) in the first place? The answer probably lies in the fact that prior to 10.09.2004, the benefit of CENVAT Credit on inputs was not available to the service providers at all. It was only with the introduction of the integrated CENVAT Credit Code for the manufacturers and the service providers alike in the form of 'CENVAT Credit Rules, 2004' on 10.09.2004 that the benefit of CENVAT Credit on inputs was extended to the service providers for the first time. It, therefore, appears that extending benefit of CENVAT Credit to the service providers on duty paid inputs lying in stock with them as on 10.09.2004 but received by them prior to this date was not considered as justified or warranted by the Legislature. The condition relating to the 'receipt of input on or after 10.09.2004' contained in sub-rule (3) providing transitional credit to the service providers has to be seen from this perspective. This restriction, as will be observed, is 'conspicuous by its absence' in sub-rule (2) of Rule 3!

Having said so, it is felt that the use of 'non-obstante clause' in sub-rule (3) is rather superfluous and unnecessary in as much as in the first place, sub-rule (3) does not override anything that is contained in sub-rule (1) and secondly, even sans non-obstante clause , sub-rule (3), as is worded, would have achieved the legislative purpose.

Be that as it may, barring the condition of receipt of inputs on or after 10.09.2004, sub-rule (3) dealing with service providers rests on the equal pedestal with sub-rule (2) that deals with the manufacturers and what is discussed at para (b) hereinabove, would also hold good in the context of sub-rule (3). Therefore, the third proviso to Rule 4 (1) cannot be said to be applicable when a service provider claims credit on duty paid inputs lying in stock with him in terms of sub-rule (3) of Rule 3.

(d) Sub-rules (2) & (3) of Rule 3, on one hand, and third proviso to Rule 4 (1), on the other, operate in different spheres, with different objectives. Neither of these two provisions are in conflict with nor have any bearing on each other. However, even if it is considered that the provisions are in conflict with each other, they have to be read in a meaningful manner and harmoniously. The principles of law on the 'Rule of Harmonious Construction' have been explained by the Supreme Court in the case of Sultana Begum vs. Prem Chand Jain - AIR 1997 SC 1006 as follows:

"(1) It is the duty of the courts to avoid a head-on clash between two Sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonise them. (2) The provisions of one Section of a statute cannot be used to defeat the other provisions unless the court, in spite of its efforts, finds it impossible to effect reconciliation between them. (3) It has to be borne in mind by all the courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is the essence of the rule of "harmonious construction". (4) The courts have also to keep in mind that an interpretation which reduces one of the provisions as a "dead letter" or "useless lumber" is not harmonious construction. (5) To harmonise is not to destroy any statutory provision or to render it otiose."

If time-limit of 6 months for taking credit on inputs prescribed vide third proviso to Rule 4 (1) is applied to the claim for credit in terms of sub-rules (2) & (3) of Rule 3, it would lead to anomalies, discrimination and unjust denial of credit to the assesses and would even render sub-rules (2) & (3) nugatory or otiose. Such an interpretation would be contrary to the aforesaid settled principles of law and will be impermissible in law.

In view of the above, it is viewed that the third proviso to Rule 4(1) of CCR, 2004 would not apply when credit on inputs is claimed in terms of sub-rule (2) or (3) of Rule 3 of CCR, 2004.

Credit on duty-paid goods returned to the factory - "Return…..any time!"

Rule 16 of Central Excise Rules, 2002 ('CER, 2002') contains provisions dealing with the return of duty-paid final products to the factory of the manufacturer for various purposes like refining, repairs, remaking, reconditioning, testing, etc. or for any other purpose. For the ease of reference, the relevant portion of Rule 16 is reproduced below:

"RULE 16. Credit of duty on goods brought to the factory. — (1) Where any goods on which duty had been paid at the time of removal thereof 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 such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.

(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be."

The issue that arises here is whether the third proviso to Rule 4(1) of CCR, 2004 would apply when credit is claimed by a manufacturer under Rule 16 of CER, 2002 on the basis of his original invoice accompanying the returned duty-paid goods?

Before this issue is dealt with, it would be advantageous to have a look at the historical background of Rule 16 which the netizens would find quite interesting.

Rule 16 was originally introduced as a part of the Central Excise (No.2) Rules, 2001 (CER, 2001) effective from 01.07.2001 superseding the Central Excise Rules, 1944 (CER, 1944). Prior to this date, there were no provisions in CER, 1944 or the relevant Rules thereof governing Modvat Credit Scheme (i.e. Rules 57A to 57I or Rules 57AA to 57AK, as in force at the material time) providing for the CENVAT Credit on duty-paid final products returned to the factory of the original manufacturer.

However, even in the absence of any specific statutory provisions, the admissibility of Modvat Credit on the duty-paid goods returned to factory of the manufacturer and used as inputs for further re-manufacture of the fresh/new final product was ultimately upheld by the Larger Bench of the Tribunal in the following cases, on consideration of three independent references made to it in three separate batch of appeals:

1. Hindalco Industries Ltd. Vs CCE, Allahabad - 2000 (119) ELT 711 (Tri-LB);

2. Commissioner Vs. Bhushan Steels & Strips Ltd.- 2002-TIOL-173-CESTAT-DEL-LB;

3. CCE, Meerut Vs. Tin Manufacturing Co. - 2002-TIOL-172-CESTAT-DEL-LB;

It is interesting to note here that all the three references were decided by the Larger bench in the same month i.e. June, 2000 only!

In Hindalco Industries' case (supra) and Tin Manufacturing's case (supra), the Larger Bench also took due note of the following clarifications issued by the Board vide its Circular No. 263/45/89-CX8 dated 07.08.1989:

"I am directed to invite your attention to the minutes on point No.6 of the Monthly Modvat meeting held at Pune on 23.06.89 on the above subject.

It was mentioned by FEII that, Modvat Credit was not being allowed in your Collectorate on the rejected final products which were subsequently remelted for manufacture of fresh final products. As clarified in the said meeting Modvat Credit would be admissible on the rejected products (inputs) if fresh products are made out of the same. You may, therefore take remedial action accordingly."

The decision of the Larger Bench in Bhushan Steel's case (supra) and Hindalco's case (supra) have recently been approved by the Hon'ble Jharkhand High Court in the case of CCE, Ranchi Vs. Maithan Chemicals Ltd. - 2013 (31) STR 531 (Jhar.).

Meanwhile, 'CER, 1944' stood superseded by 'CER, 2001' w.e.f. 01.07.2001. However, presumably, taking note of the Larger Bench's decisions and its own Circulars on the issue, Board ensured that a specific provision was made for taking credit on duty paid final products returned to the factory of the manufacturer. This provision was contained in Rule 16 of the new set of Rules i.e. CER, 2001 and it is predecessor of the present Rule 16 of CER, 2002.

It is also worthwhile to mention here that the CENVAT Credit Rules, 2001 which were also introduced simultaneously on 01.07.2001 and the subsequent CENVAT Credit Rules, 2002 effective from 01.03.2002 did not contain any provision for the availment of CENVAT Credit by the manufacturers on the returned duty-paid goods. Even the present CCR, 2004 also does not have nor ever had any such provision.

Against the above historical backdrop, let us now consider the issue of applicability of time limit of 6 months for taking CENVAT Credit on duty paid final products returned to the factory of a manufacturer in terms of Rule 16 of CER, 2002.

Considering the history of the advent of this provision and the legislative purpose and intent behind the same, it is viewed that like sub-rule (2) & (3) of Rule 3 of CCR, 2004 (discussed hereinabove), Rule 16 of CER, 2002 is also an independent provision providing for availment of CENVAT Credit by a manufacturer in a specific situation. Consequently, the third proviso to Rule 4 (1) of CCR,2004 would not and cannot apply in the cases covered by Rule 16 of CER,2002. This is notwithstanding the fact that the CENVAT Credit on 'returned duty paid goods' is allowed under Rule 16 'as if such goods are received as inputs under the CENVAT Credit Rules, 2002'. It is viewed that the 'deemed status of inputs' is accorded to the 'returned duty paid final products' under Rule 16 (1) merely with a view to pave the way for the manufacturers to avail CENVAT Credit of duty originally paid on such goods without any hindrance. The provision, as a matter of fact, echoes the view expressed by the Board vide its Circular dated 07.08.1989 and is also in consonance with the principles of law laid down vide the judgments of the Larger Bench of the Tribunal referred to supra. However, Rule 16 (1) does not go beyond granting a 'deemed status of inputs' to the 'returned duty paid final products' and does not further provide for the applicability of all the provisions of CCR, 2004 mutatis mutandis to such 'returned duty paid final products' deemed to be 'inputs' received under CCR, 2002 [incidentally, Rule 16 (1) continues, albeit incorrectly, to refer to 'CENVAT Credit Rules, 2002' till date instead of 'CENVAT Credit Rules,2004'! It must be really a herculean task for the Board to keep a track of all the amendments made or required to be made!

It is also pertinent to note here that the provision for the taking of CENVAT Credit of duty originally paid on returned duty paid final products is made part of CER, 2002 and not CCR, 2004. This also signifies the legislative intent that Rule 16 of CER, 2002 is an independent provision not circumscribed by the provisions of CCR, 2004 except in the matter of utilization of credit so availed.

Rule 16 is a beneficial piece of legislation and its applicability or operation cannot be curtailed down or restricted by bringing into play any external condition. Moreover, if the time limit of 6 months prescribed vide third proviso to Rule 4(1) of CCR, 2004 is applied to the cases covered by Rule 16 of CER, 2002, it would lead to anomalous and absurd consequences. The recipient of the duty paid final products would then be compelled to return the goods, if necessary, within 6 months from the date of the original invoice of the supplier-manufacturer. Alternatively, the recipient may have to unnecessarily take the CENVAT Credit first on such duty paid final products received by him within 6 months and then remove the same 'as such' in terms of Rule 3(5) of CCR, 2004 under the cover of his own invoice so as to enable the original supplier-manufacturer to avail credit thereon within the prescribed time limit of 6 months from the date of such invoice. Needless to say, such unnecessary 'paper-work' and 'merry-go-round' manner of taking CENVAT Credit on the same goods is neither warranted nor the same could be said to have been envisaged by the legislature.

Lastly, the discussion made on 'principles of harmonious construction' in the preceding paragraphs in the context of sub-rule (2) & (3) of Rule 3 of CCR, 2004 also holds good so far as Rule 16 of CER, 2002 vis-à-vis third proviso to Rule 4 (1) of CCR, 2004 is concerned.

To conclude, the time limit of 6 months for taking credit should not apply when the CENVAT Credit is taken by the manufacturer on the returned duty-paid goods on the basis of his own original invoice.

However, a word of caution here! Though there is no time limit in CCR, 2004 for the utilization (or return) of input, it is advisable not to be lax in the matter of return of inputs and there should not be any inordinate delay in returning the inputs if not found suitable or acceptable. This would avoid any unnecessary dispute with the departmental authorities.

Past demand and claim for Credit - "Everything is not lost, after all…!"

A situation frequently arises when a manufacturer or service provider has originally not paid the excise duty or service tax by availing benefit of any exemption notification or considering his activity as non-excisable or non-taxable on any basis. The non-payment of duty or tax may be under bonafide belief or by recourse to willful suppression of facts, etc. with intent to evade payment of duty or service tax or at times, or may even be with the knowledge of the department. When such claim is disputed by the department and the demand of duty or service tax is raised for the past period, a claim to CENVAT Credit on inputs or input services used during the relevant period for which demand is raised is invariably made.

The principle of law on the admissibility of CENVAT Credit in such cases has been laid down by the Hon'ble Supreme Court in the case of Formica India Division Vs. CCE - 2002-TIOL-599-SC-CX , wherein, the Hon'ble Court observed and held as under:

"2. The High Court, however, took note of the fact that no contention had been raised before the Tribunal that the appellants should be permitted to meet the requirements of Rule 56A of the Central Excise Rules and, therefore, they cannot be permitted to avail of that benefit in a Writ Petition brought under Article 226 of the Constitution. That indeed was a technical view to take because if the appellants were entitled to the benefit of the Notification No. 71/71-C.E., dated 29th May, 1971, to deny that benefit on the technical ground of non-compliance with Rule 56A would tantamount to permitting recovery of double duty on the intermediary product. The circumstances in which the appellants did not pay the duty on the intermediary product before putting the same to captive consumption for producing that stage, the appellants contested the correctness of the classification and had, therefore, not paid the duty on the intermediary product. When it was found that they were liable to pay duty on the intermediary product and had not paid the same, but had paid the duty on the end product, they could not ordinarily have complied with the requirements of Rule 56A. Once the Tribunal took the view that they were liable to pay duty on the intermediary product and they would have been entitled to the benefit of the notification had they met with the requirement of Rule 56A, the proper course was to permit them to do so rather than denying to them the benefit on the technical ground that the point of time when they could have done so had elapsed and they could not be permitted to comply with Rule 56A after that stage had passed. We are, therefore, of the opinion that the appellants should be permitted to avail of the benefit of the notification by complying at this stage with Rule 56A to the satisfaction of the Department.

3. In the result, we allow Civil Appeal No. 1493/88 and remit the matter to the Collector of Central Excise with a direction to permit the appellants to comply at this stage with the requirements of Rule 56A of the Central Excise Rules and claim set off of the duty payable on the intermediary product by satisfying the Collector that the same was used in the manufacture of the end product on which full duty had already been paid. On such satisfaction being recorded, the appropriate consequential orders would be passed."

[Emphasis Provided]

The above judgment of the Hon'ble Court, needless to say, has since then been followed in large number of decisions rendered by the Appellate Tribunal as also the various High Courts. The law so laid down has been followed irrespective of whether or not there is an evasion of payment of duty or service tax by recourse to willful suppression of facts, etc.

The question that arises here is whether or not the time limit of 6 months prescribed vide third proviso to Rule 4 (1) or Sixth proviso to Rule 4 (7) of CCR, 2004 would apply when the CENVAT Credit is claimed on inputs or input services by a Noticee who is slapped with the demand of duty or service tax for the past period.

The principle that emerges from the judgment of the Hon'ble Supreme Court in the Formica's case (supra) and other judicial pronouncements is that when a demand of duty or service tax is raised against a person for the past period, he would be entitled to the benefit of any relevant exemption notification or the CENVAT Credit on the inputs or input services used by him for the manufacture of such goods or provision of service during the relevant period as if the benefit is claimed by him in present. It is as if the person is stepping back in the past and living the life in present …. !

Under these circumstances, it is viewed that the time limit of 6 months for taking CENVAT Credit prescribed vide third proviso to Rule 4 (1) or sixth proviso to Rule 4 (7) of CCR, 2004 cannot apply in such cases where the benefit of CENVAT Credit on input or input services is claimed for the past period for which the demand of duty or service tax is raised against the manufacturer or service provider.

CENVAT Credit on 'Retention amount' - "Amount retained;credit detained….?!"

"Retention" is a 'payment for a service or product that is withheld pending the completion of some specified condition' (Business Dictionary). Generally, turnkey contracts, construction contracts, etc. have a long gestation period and also involve supply of goods or services of particular standards or specifications. Such contracts invariably contain a retention clause i.e. a provision that allows the client to withhold a percentage of the contract price until the determination that all contractual obligations are fulfilled and that the project or goods or services meet the pre-determined standards or specifications.

In such case, it would not always be possible to make the payment of retention amount within the stipulated six months' period from the date of invoice of the contractor/vendor. This may create difficulties for the recipient-assessees i.e. manufacturers or service providers in availing CENVAT credit on the retention amount deducted from the total payment due to the vendors or contractors. Though different scenarios may emerge in this regard depending upon the facts of each case, the Assessees may have the following options against the backdrop of Rule 4 (7) and third proviso as well as sixth proviso thereto:

(i) Option 1:

Assessee may choose to avail full CENVAT Credit on 'accrual basis' in terms of Rule 4 (7) on the basis of the invoice raised by the vendor who has executed the entire contract, notwithstanding the fact that a portion or percentage of the invoice amount is deducted and retained by the assessee as 'retention money' in terms of the contract.

Subsequently, the Assessee may either make the payment of the invoice amount including retention amount within three months from the date of the invoice, if so provided vide the contract, or reverse the credit if the payment is not made within such stipulated period of three months, as per third proviso to Rule 4 (7). Later, when the payment is made to the vendor, the re-credit of the amount of credit originally reversed can be taken as per the said third proviso. Such re-credit will not be hit by the condition relating to the time limit of 6 months for taking credit, as clarified by the Board vide Circular dated 19.11.2014.

(ii) Option 2:

Assessee may instruct the vendor to raise two separate invoices for the job executed, that is, one for the total amount less retention amount as per the contract and another invoice for the retention amount.

Assessees thereafter can follow the same practice as discussed above while availing the CENVAT credit on the basis of these two separate invoices keeping in mind the mandate of Rule 4 (7) read with third proviso as well as sixth proviso thereto.

(iii) Option 3:

Assessee may instruct the vendor to raise the final invoice for the retention amount when the payment against such retention amount is due. The credit on 'Retention amount' can then be availed on the basis of such invoice within the prescribed time limit. Considering the fact that such contract would ordinarily qualify to be considered as 'Continuous Supply of Service' in terms of sub-clause (i) of proviso to clause (b) of Rule 3 of POTR, the issue of invoice for retention amount at a later date would be permissible and not in breach of the provisions of Rule 4A of STR that requires the issue of invoice within a period of 30 days from the date of completion of service. However, it is advisable to have a suitable clause to this effect in the contract.

It will be seen that the introduction of the rigid condition relating to 'six months' time limit for taking CENVAT Credit' may pose serious difficulties for the recipient assessees i.e. manufacturers or service providers and their vendors involved in the execution of the big-ticket projects, so far as availment of CENVAT Credit on retention money is concerned.

Stipulating time limit for taking credit - "Why this Kolaveri Di?"

Finally, a moot question: 'Why to bring back this archaic provision providing for an inflexible time limit for taking CENVAT credit by the Assessee?'

It is undeniable that even in the absence of such a time limit, the MODVAT/CENVAT Credit Scheme has operated without any significant distortions. The time limit introduced in June, 1995, which remained in vogue for a limited period upto March, 2000, did not make any major difference but if anything, created more hurdles for the Assessees and subjected them to unnecessary disputes. If introduction of this stipulation in June, 1995 was with some objective in mind and if the stipulation had helped achieve it, then surely, the similar provision would have found its place even in the subsequent CCR, 2001 or CCR, 2002 or CCR, 2004. But then, it is not the case at all.

So why to revive this ghost of the past? Did the Board felt alarmed or stung by the judicial rulings that repeatedly held that in the absence of any time limit, no time limit can be imputed into the statute from any other provision? Hence, there is no time limit for taking CENVAT Credit. See, Johnson Matthey Chem India vs. CCE - 2009-TIOL-805-CESTAT-MUM;Industrial Cables vs. CCE - 2009-TIOL-244-HC-P&H-CX;Saritha Sugars vs. CCE - 2011-TIOL-509-CESTAT-BANG;to cite a few. In Coromandel Fertilizers vs. CCE - 2009-TIOL-153-CESTAT-BANG, it was even held that as there is no time limit for availing CENVAT Credit, it can be taken even after 3 to 7 years. A similar view was taken by the CESTAT (SMB) in the case of Central Bank of India vs. CCE - 2012-TIOL-1314-CESTAT-MAD, wherein it was held that the credit taken in the year 2009 for October, 2004 to March, 2009 was in order.

Probably, the decision in Central Bank's case (supra) might have come as a proverbial 'last straw' and the Board might have felt that 'enough is enough'! And so comes, the stipulation providing for 6 months' time limit for taking CENVAT Credit on inputs or input services!

"Hell hath no fury like a bureaucrat scorned…!

[Milton Friedman)

But the Board ought to appreciate that delayed availment of CENVAT credit is more an exception rather than a routine practice and that no assessee would like to unnecessarily delay taking of CENVAT Credit that practically serves the purpose of 'cash in hand' for him.

Therefore, if, in some stray cases, there is such delayed taking of CENVAT Credit and if it is upheld by the judicial fora based on the plain reading of the statutory provisions, is there any need or justification for subjecting the Assessees en masse to hardships by introducing such artificial time limit?

On the other hand, if the Board is of the view that delayed availment of CENVAT Credit leads to distortion in revenue collections or may perpetuate fraud or lead to misuse or malpractice, then Board shall openly say so. After all, aren't the taxpayers entitled to know the reason or justification behind the introduction of this stipulation having far-reaching impact? Will such restriction continue even in the impending GST regime?

To sum up…

It is felt that the Board must take a re-look at this provision and considering the changing taxation and economic scenario in the country, must seriously think to withdraw this archaic and rigid provision or, at least, take the Trade and Industry into confidence and apprise them of the need or reason behind introducing the same.

After all, availment of CENVAT Credit freely and without any fetter can also be regarded as ' ease of doing business in India!'

"'Crazy' is a term of art;'insane' is a term of law. Remember that, and you will save yourself a lot of trouble." - Hunter S. Thompson

(The author is Sr. Advisor - Indirect Tax - BDO India LLP)

(The two-part article stands concluded.)

See 6 months' validity of CENVATable Documents - 'Old Ghost comes calling ….!' [Part-I]