MARCH 03, 2015

By Harish R, Advocate

PRIOR to 1.3.2015, Rule 4(5)(a) of the Cenvat Credit Rules, 2004 read as under:

"(5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service ."

++ Rule 4(5)(a) has been substituted w.e.f. 1.3.2015 providing for sending inputs, capital goods to multiple job workers and extending time limit of 2 years for return of capital goods from a job-worker.

++ Several disputes were raised by the department in the past wherein it was sought to demand and recover the credit amount on the ground that the inputs/capital goods were not received back within 180 days or diverted elsewhere for ‘n' number of reasons.

++ Even in the absence of recovery mechanism provided under Rule 4(5)(a), the department was issuing SCNs to recover the "amounts" under Rule 12 of Cenvat Credit Rules, 2002/Rule 14 of CCR, 2004.

++ The assessee always contended that the recovery of the credit in question cannot be ordered under Rule 12/14 of the CCR,2002/2004 since the credit in question has been availed correctly and hence such utilization is also legally correct; that Rule 14 only covers situation where the credit has been wrongly availed or utilized or erroneously refunded.

++ In order to overcome this anomaly, the Government has now brought an amendment in the Rule 4 of CCR, 2004 by making applicable the recovery mechanism provided in sub-Rule 7 of Rule 4 to all the limbs of Rule 4.

++ Explanation I and II in sub-rule 7 of Rule 4 (prior to 1.3.2015) read as under:

Explanation I. - The amount mentioned in this sub-rule , unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.

Explanation II. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.

++ Vide Notification 6/2015 (NT) dated 1.3.2015 the expression sub-rule in above Explanations has been substituted to read as rule.

Observations:-

++ Interestingly, the amendment is by way of substitution. It is to be seen, in the times to come, how department interprets this amendment?

++ If the contention of the department that Rule 14 always had mechanism to recover theamounts recoverable for violation under Rule 4(5)(a), then why this amendment?

++ The Assesses will definitely argue that the present amendment shows that Rule 14 never provided for recovery mechanism earlier and this Rule is operative only prospectively.

(The Author is Joint Partner at Lakshmikumaran & Sridharan, Bangalore.)